How a salary insurance scheme would work

The unemployed would receive a higher level of support and pay back when they return to work.

On yesterday's Newsnight, James Purnell made two big argument about how we could make people trust and respect the welfare state again. First, that it should provide fewer, bigger things that would really make a difference to people's lives, rather than many smaller ones that are marginal in the good times and insufficient in the bad. And second, that the principle of contribution should be revived, so that people get something out in return for what they put in.

This would reverse the approach of successive government over recent decades, which has been to maintain a permanent rear-guard action against the threat of a taxpayer rebellion by making the welfare state tougher for those on benefits. Conditionality has an important role to play, but this is an essentially defensive tactic, rather than a positive strategy. For those of us who see a strong welfare state as essential to advancing social justice and full employment, this won't do. The solution is to not only make welfare more demanding, but also more protective too.

This insight opens up the potential to develop a popular, majoritarian agenda for welfare. As a first step along that road, IPPR is today publishing a report proposing National Salary Insurance (NSI). This would offer anyone who had made enough national insurance contributions but became unemployed up to 70 per cent of their previous earnings in non-means tested support for up to six months, capped at a maximum of £200 a week.

NSI would incorporate the existing £67.50 a week of contributory JSA, trebling the amount of support available to working people when they lose their job - while not affecting their entitlement to other benefits or tax credits. This would help protect people from the dramatic drop in income they face on losing their job, which can often trigger a spiral of further (costly) problems, like losing their home, relationship breakdown or racking up unaffordable debt. Based on recent JSA flows, we estimate that between 700,000 and one million people each year could be entitled to NSI.

To make the scheme affordable, the extra amount in NSI - up to £132.50 a week - would be repaid once people were back in work and could afford to do so, charged at a zero real rate of interest. There would be a cap on the amount that people could borrow at any one time, equivalent to the maximum support for the full six months (£3,445). Eighty per cent of people claiming JSA get back to work inside six months and as people paid back, they would become entitled to the help again.

In short, NSI would offer much greater security to people when it is really needed, without imposing significant new net costs on the state. Based on the design of the student loans system, the net liability to the state of NSI would be between £180m and £520m a year - though because people would be able to borrow less and have to pay back sooner, there are good reasons for thinking it would be even cheaper.

For much of the 20th century unemployment benefit was paid at reasonable levels of generosity to people who had lost their job after having paid into the system. Over the last three decades, however, the contributory principle has been eroded (with means testing becomingly increasingly dominant), while the real value of the jobseeker's allowance (JSA) has declined significantly relative to average earnings. Today, the average 'replacement rate' for British workers - the proportion of previous earnings they can get if they lose their job - is 54 per cent, compared to 70 per cent or more for many of our European neighbours, including some with higher employment rates than ours (like Denmark and the Netherlands).

So people not only worry to others are taking advantage of the system unfairly, they also feel - often rightly - that the system won't really be there for them if they need it. In response to this problem, NSI would significantly provide real income security in a more risky world, while reinforcing the principle that people are rewarded for contributing to the system.

NSI contributes to the big task of rethinking the centre-left's approach to welfare in a post-crash era. Alongside ensuring that people on benefits fulfil their obligations to look for work in return for the support they receive, this reform can help to make the welfare state popular again - by showing that it demands more and protects better.

Graeme Cooke is Visiting Fellow at IPPR

Graeme Cooke is Associate Director at IPPR

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Vince Cable will need something snappier than a graduate tax to escape tuition fees

Perhaps he's placing his hopes in the “Anti Brexit People’s Liberation Front.” 

“We took power, and we got crushed,” Tim Farron said in what would turn out to be his final Autumn conference as Liberal Democrat leader, before hastening on to talk about Brexit and the need for a strong opposition.

A year and a snap election later, Vince Cable, the Lib Dem warhorse-turned-leader and the former Coalition business secretary, had plenty of cracks about Brexit.

He called for a second referendum – or what he dubbed a “first referendum on the facts” – and joked that he was “half prepared for a spell in a cell with Supreme Court judges, Gina Miller, Ken Clarke, and the governors of the BBC” for suggesting it".

Lib Dems, he suggested, were the “political adults” in the room, while Labour sat on the fence. Unlike Farron, however, he did not rule out the idea of working with Jeremy Corbyn, and urged "grown ups" in other parties to put aside their differences. “Jeremy – join us in the Anti Brexit People’s Liberation Front,” he said. The Lib Dems had been right on Iraq, and would be proved right on Brexit, he added. 

But unlike Farron, Cable revisited his party’s time in power.

“In government, we did a lot of good and we stopped a lot of bad,” he told conference. “Don’t let the Tories tell you that they lifted millions of low-earners out of income tax. We did… But we have paid a very high political price.”

Cable paid the price himself, when he lost his Twickenham seat in 2015, and saw his former Coalition colleague Nick Clegg turfed out of student-heavy Sheffield Hallam. However much the Lib Dems might wish it away, the tuition fees debate is here to stay, aided by some canny Labour manoeuvring, and no amount of opposition to Brexit will hide it.

“There is an elephant in the room,” the newly re-established MP for Twickenham said in his speech. “Debt – specifically student debt.” He defended the policy (he chose to vote for it in 2010, rather than abstain) for making sure universities were properly funded, but added: “Just because the system operates like a tax, we cannot escape the fact it isn’t seen as one.” He is reviewing options for the future, including a graduate tax. But students are unlikely to be cheering for a graduate tax when Labour is pledging to scrap tuition fees altogether.

There lies Cable’s challenge. Farron may have stepped down a week after the election declaring himself “torn” between religion and party, but if he had stayed, he would have had to face the fact that voters were happier to nibble Labour’s Brexit fudge (with lashings of free tuition fees), than choose a party on pure Remain principles alone.

“We are not a single-issue party…we’re not Ukip in reverse,” Cable said. “I see our future as a party of government.” In which case, the onus is on him to come up with something more inspiring than a graduate tax.

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.