We need to enable welfare contribution, not just enforce it

Is there a place for the contributory principle in the 21st century?

Liam Byrne’s article in the Guardian over the weekend re-opened the debate about what a more contributory system of social security might actually mean. Stating that "we must do more to strengthen the old principle of contribution: there are lots of people right now who feel they pay an awful lot more in than they ever get back," Byrne gave an example that doesn’t have much to do with the benefit system: giving priority in social housing allocations to those who "work and contribute to their community".

But how much scope is there for a revived contributory principle? And how far might this go to increasing public support for social security? We looked at the options for a more contributory system within social security in a report for the TUC last May. Here’s four things we concluded:

No system of social security can be based only on contributions

There’s a lot of confusion about the role of contributory benefits.

Allegra Stratton tweeted yesterday:

This is clearly a false choice. Any system of social security needs to meet different functions, and different models will be appropriate for each.

Let’s concentrate on working age benefits, as neither government nor opposition seems to be willing to discuss cutting pensioners’ entitlements. Universal benefits are appropriate for meeting additional costs faced by a particular group – those with children (Child Benefit was universal until recently), or those who face extra costs because of disability; the Government’s new Personal Independence Payment, like its predecessor Disability Living Allowance, is a universal benefit in that it’s not means tested, and applies universally to those meeting the conditions.

Tax credits primarily serve to top up wages for families with children – to ensure the politician's goal of ensuring that "work always pays" (something they’ve done pretty successfully to date). There’s a debate to be had about the extent to which tax credit expenditure could be reduced by increasing earnings – but it would be clearly absurd to base wage supplements on previous employment records (and we don’t think anyone is actually suggesting this).

Where the principle of contribution comes in is in the "insurance" functions of social security: preventing poverty during periods of either unplanned absence from work (sickness or unemployment) or planned absence (maternity leave). This is where the contributory principle has always functioned, and where its revival or enhancement looks most promising (of which more below).

A more contributory system isn’t a magic bullet

We know that in the long term, the more insurance based, earnings related systems prevalent in continental Europe are in general more popular than our own more means tested system. But we can’t assume that introducing more contributory elements into the UK system would instantly restore credibility to the social security system, for two reasons.

Firstly, as we argued in the report, and with Ben Baumberg in Benefits stigma in Britain, the widespread perception that the system is allowing people to gain "something for nothing" is based more on political and media representation of social security than experience. Prior to the recession, out-of-work benefit receipt was falling steadily; in contrast, media coverage depicting claimants as "scroungers" or using the vocabulary of non-reciprocity was rising sharply.

A more contributory system might offer a peg on which to hang a rhetorical strategy that seeks to convince people that the benefit system is largely doing the job it’s supposed to, but it’s unlikely to be enough on its own to restore credibility to the system. As we argued in the report, in everyday life people generally have very little information on which to assess whether claimants are "deserving" of support or not, or whether they have made contributions, and there is compelling evidence that they supplement this limited information with media stories. There is good reason, both empirically and theoretically, for suspecting that the default setting for views on social security in the UK is strongly negative.

Secondly, the idea that the UK might move rapidly to a fully-fledged contributory system seems implausible. The proposals for making contributions more important which have emerged so far, including ours, are pretty modest and wouldn’t constitute fundamental changes to a system which relies heavily on means-testing. As a long-term ambition, a rebalancing of contributory, universal and means-tested elements may be attractive, but as a way of dealing with the immediate perceived problem of legitimacy, we shouldn’t expect too much.

A contributory system could be used to break down some of the distinctions between employment and caring, rather than reinforcing them

A frequent critique of contributory systems is that they fail to recognise forms of contribution other than employment – caring for children or relatives for example. The current contributory system, National Insurance, actually does recognise these activities: recipients of Carer’s Allowance receive National Insurance credits, as do those on paid maternity leave.

We think that the key challenge for social security in the future should be to encourage employment. But we proposed a way that a more contributory system might do this by making combining employment and caring more compatible. As we put it in a previous blog for Touchstone:

We take our cue from the Belgian "time credit" system, in which contributions build up to the right to take up to a year off from employment, with financial support, to enable a range of activities including childcare, caring for a sick or elderly relative, or training. As a step towards this, we suggest that parents’ current entitlement to a period of unpaid parental leave could be supported through a contributions related payment. This model could also be extended to workers who need to provide temporary support for elderly or disabled relatives.

Thinking about our current system of parental leave and payment structures might also give us some clues towards how we could design a revival of the contributory principle in areas such as unemployment and sickness benefits. Statutory Maternity Pay at present is earnings related for six weeks, providing a cushion when people first exit employment, and then reverts to a flat rate payment, recognising that over time, most people’s needs will be broadly similar. If we wanted to think in the long term about how to embed a more earnings related system, this might be one model.

Social security exists in context: policies to promote employment will largely exist outside the social security system

Perhaps the most encouraging part of Liam Byrne’s article was the statement of a Labour commitment to full employment, one of Beveridge’s original "fundamental assumptions" underlying his design for National Insurance (alongside the establishment of the National Health Service and the introduction of Family Allowances, now Child Benefit). We argued in the report that this needs to be a commitment that takes into account the reasons why many people remain unemployed: a lack of childcare (now thankfully receiving attention from all sides), and the failure to design an employer-based strategy to enable disabled people to fulfil their potential in the workplace. In this way, "enabling contribution" could be as much a focus of policy as enforcing it through the social security system.

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Chuka Umunna calls for "solidarity" among Labour MPs, whoever is voted leader

The full text of shadow business secretary Chuka Umunna's speech to Policy Network on election-winning ideas for Labour's future, and the weaknesses of the New Labour project.

There has never been an easy time to be a social democrat (or “democratic socialist” as we sometimes call ourselves in Britain). Whereas the right can demonise the poor and extol the virtues of the market, and the hard left can demonise the market and extol the role of the state, our position of constraining the domination of markets and reforming the state is, by definition, more complex.

It is nonetheless the case that social democracy has a historic responsibility, in every generation, to renew democracy and preserve a civic culture. This is achieved not through soundbites and slogans, but through the hard-headed development of a progressive politics that reconciles liberty and democracy, new comers and locals to our communities, business and workers, in a common life that preserves security, prosperity and peace.  This historic mission is all the more urgent now and my determination that we succeed has grown not weakened since our election defeat last May.

But, in order to be heard, it is necessary to make balanced and reasonable argument that both animates and inspires our movement, and which is popular and plausible with the people.  The first is pre-requisite to the second; and there is no choice to be made between your party’s fundamental principles and electability. They are mutually dependent - you cannot do one without the other.

We are in the midst of choosing a new leader and it is clear to anyone who has watched the UK Labour Party leadership election this summer that amongst a significant number there is a profound rage against Third Way politics – as pursued by the likes of Bill Clinton, Tony Blair, Gerhard Schröder and others - as a rejection of our fundamental values.

In the UK there is a view that New Labour accepted an uncritical accommodation with global capital that widened inequality, weakened organised labour and we were too close to the US Republicans and too far from the European left.

I do not believe this is fair, not least because we rescued many of our public services from the scrap heap when we came to office in 1997 and there were very significant achievements  we should celebrate.  New Labour renewed our National Health Service in a fundamental way; we built new schools and improved existing ones; we set up new children’s centres all over the country; we brought in a National Minimum Wage; we worked with others to bring peace to Northern Ireland; we introduced civil partnerships.  Just some of our achievements.

However, though we may take issue with the critique, I do not think we can simply dismiss out of hand those who hold critical views of New Labour. Like any government, the New Labour administration made mistakes - it could and should have achieved more, and done more to challenge the Right’s assumptions about the world. In the end, it is not unreasonable to be ambitious for what your party in government can achieve in building greater equality, liberty, democracy and sustainability. It is far better we acknowledge, not reject, this ambition for a better world, as we seek to forge a new politics of the common good fit for the future.

Realising our values in office has been disrupted by globalisation and the surge of technological forces that are displacing and reshaping industry after industry.

Some argue that globalisation as an ideological construct of the right. But we must recognise that we live in an increasingly integrated world in which markets have led to an unprecedented participation of excluded people in prosperity, a rise in living standards for hundreds of millions  of people and a literacy unprecedented in human history – this is particularly so in emerging economies like my father’s native Nigeria. And the internet has led to a level of accountability that has disturbed elites.

Yet, this has been combined with a concentration of ownership that needs to be challenged, of a subordination of politics that requires creative rather than reactive thinking, and these global forces have exacerbated inequalities as well as helped reduce poverty.

So it is important that we understand the sheer scale and impact of new technologies. At the moment we are engaged in a debate about Uber and its threat to one of the last vestiges of vocational labour markets left in London, those of the black taxi cabs and their attainment of 'The Knowledge'. But the reality is that within the next decade there will be the emergence of driverless cars so we have to intensify our exploration of how to support people in a knowledge economy and the realities of lifelong learning, as well as lifelong teaching. As people live longer we will have to think about how to engage them constructively in work and teaching in new ways.

Once again, I'm addressing all of this, Social Democracy requires a balanced view that domesticates the destructive energy of capital while recognising its creative energy, that recognises the need for new skills rather than simply the protection of old ones. A Social Democracy that recognises that internationalism requires co-operation between states and not a zero sum game that protectionism would encourage.

Above all, Social Democratic politics must recognise the importance of place, of the resources to be found in the local through which the pressures of globalisation can be mediated and shaped. Our job is to shape the future and neither to accept it as a passive fate nor to indulge the fantasy that we can dominate it but to work with the grain of change in order to renew our tradition, recognising the creativity of the workforce, the benefits of democracy and the importance of building a common life.  Sources of value are to be found in local traditions and institutions.

This also requires a recognition that though demonstration and protest are important,; but relationships and conversations are a far more effective way of building a movement for political change.

One of the huge weaknesses of New Labour was in its reliance on mobilisation from the centre rather than organising. It therefore allowed itself to be characterised as an elite project with wide popular support but it did not build a base for its support within the party across the country, and it did not develop leaders from the communities it represented. It was strong on policy but weak on strengthening democratic politics, particularly Labour politics.

Over half a million people are now members, supporters or affiliated supporters of our party, with hundreds of thousands joining in the last few weeks. Some have joined in order to thwart the pursuit of Labour values but many more have joined to further the pursuit of those values, including lots of young people. At a time when so many are walking away from centre left parties across the Western world and many young people do not vote let alone join a party, this is surely something to celebrate.

So it is vital that we now embrace our new joiners and harness the energy they can bring to renewing Labour’s connection with the people. First, we must help as many them as possible to become doorstep activists for our politics. Second, I have long argued UK Labour should campaign and organise not only to win elections but to affect tangible change through local community campaigns. We brought Arnie Graf, the Chicago community organiser who mentored President Obama in his early years, over from the U.S. to help teach us how to community organise more effectively. We should bring Arnie back over to finish the job and help empower our new joiners to be the change they want to see in every community – we need to build on the links they have with local groups and organisations.

I mentioned at the beginning that in every generation Social Democracy is besieged from left and right but the achievements of each generation are defined by the strength of a complex political tradition that strengthens solidarity through protecting democracy and liberty, a role for the state and the market and seeks to shape the future through an inclusive politics. Solidarity is key which is why we must accept the result of our contest when it comes and support our new leader in developing an agenda that can return Labour to office.

Yes, these are troubled times for social democrats. All over Europe there is a sense among our traditional voters that we are remote and do not share their concerns or represent their interests or values.  There is surge of support for populist right wing parties from Denmark to France, of more left wing parties in Greece and Spain and in Britain too. There is renewal of imperial politics in Russia, the murderous and abhorrent regime of ISIL in the Middle East, volatility in the Chinese economy and in Europe a flow of immigration that causes fear and anxiety.

But, the task of Social Democracy in our time is to fashion a politics of hope that can bring together divided populations around justice, peace and prosperity so that we can govern ourselves democratically. We have seen worse than this and weathered the storm. I am looking forward, with great optimism to be being part of a generation that renews our relevance and popularity in the years to come.

Chuka Umunna is the shadow business secretary and the Labour MP for Streatham.