Economy 9 April 2013 We need to enable welfare contribution, not just enforce it Is there a place for the contributory principle in the 21st century? Print HTML 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: The welfare Q for Labour, acc to Lab sources: they must choose btw universal benefits, contributory ben or tax credits. Can't afford all. — Allegra Stratton (@BBCAllegra) April 7, 2013 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. › Retail sales up: but then January-March has been an exception Photograph: Getty Images From only £1 a week Subscribe More Related articles The free market? There's no such thing Housing associations are under pressure - but we're doing our best Why is the government giving £45m to Roman Abramovich while letting a British steelworks go to the wall?