David Kirkby: Ensuring more pay into benefits ‘club’

IN his recent immigration speech, David Cameron explained that Britain’s welfare system should be like a “national club” and was critical of how “those who have not paid in can immediately take out”.

Clubs offer all sorts of benefits – for those who have paid their fees. Applying the analogy to welfare, it implies that there should be some recognition of the fees paid or the ‘contributions’ claimants have made in the past.

This may be used to justify denying EU migrants access to, for example, tax credits for a period until they have contributed, but it may also motivate a more general consideration of who has contributed to the system, and what that contribution should count for.

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This contributory principle enjoys considerable support amongst the public. In polling for Bright Blue’s new report, Give and Take, we found that a majority of respondents (54 per cent) agreed that those who are unemployed and who have contributed in the past should receive more than those who have not.

This support is not evenly spread. Conservative voters are more likely than Labour voters to support greater recognition of contribution. Even among Labour voters though, a significant minority supported this.

Of course, this finding does not mean that voters would support abolishing means-tested benefits or simply shutting out anyone who has not contributed. Nevertheless, it shows that contribution is widely seen as a factor which should matter for welfare provision and benefit entitlement.

This is what the public wants, but it is not what the system is currently delivering. Contributory benefits now account for only 10 per cent of the Government’s working-age welfare budget – down from 40 per cent in the 1970s.

To compound matters, the contributory benefits which do exist do little to reward contribution.

The two major working-age contributory benefits – Contributory Jobseeker’s Allowance and Contributory Employment and Support Allowance – provide support for unemployed individuals who have paid a certain amount of National Insurance.

However, while these benefits ensure that those who have contributed are eligible for support, the level of support they receive is no higher than that received by unemployed individuals who have not paid this National Insurance. As such, these benefits do little to uphold the contributory principle.

In Give and take, we make three recommendations for making Britain’s welfare system more contributory.

First, we propose the introduction of a Contribution Supplement in the Universal Credit to provide more money for claimants who have longer National Insurance (NI) contribution histories.

This Contribution Supplement will be tiered. So, the Government will decide a minimum number of years of NI payments for which a claimant has to have previously worked for until their household becomes eligible for extra payment. If the claimant reaches a higher specific number of years worked with NI contributions previously, that household will be eligible for another payment.

Second, we propose a Contribution Supplement in Statutory Maternity Pay (SMP). Mothers with longer National Insurance contribution histories will be eligible for additional funding on top of the base rate of £138.18 per week they receive after the first six weeks.

This will be tiered. So, the Government will decide a minimum number of years for which an eligible mother has to have previously worked for with NI contributions until they become eligible.

Third, we propose that all people be able to save into a Contributory Top-up Account from their salary through a new class of National Insurance. These contributions will go into a tax-free, high interest savings account.

Government may decide to further encourage savings to this account by topping up accounts for those on low incomes. The contributions will be capped. Individuals can draw down from these accounts when they are eligible for Universal Credit, when they or their partner are on paid or unpaid parental leave, or upon retirement.

Alternatively, upon retirement, individuals can choose to transfer their surplus balance to other relatives.

Taken together, these proposals will help restore contribution to our welfare system and ensure that what individuals have ‘paid in’ is properly recognised.

• David Kirkby is a researcher at Bright Blue and co-author of their new report, Give and take. He tweets @kirkbydj