Why Labour is right to consider a salary insurance scheme

A welfare system that provides greater support to people when they need it most offers an alternative to the divisive pose bring struck by the coalition.

On Sunday, the Observer reported that Labour are considering an IPPR proposal to establish a system of National Salary Insurance (NSI). This would offer working people who have contributed into the benefits system, but have lost their job, much greater income protection at the point they need it most. The twist on the proposal – which has provoked most reaction – is that to control the costs of the system, the extra money provided would be recouped once people are back in employment.

To clear up one thing straight away: this proposal is in addition to existing entitlements to Jobseeker's Allowance (we do not want to turn JSA into a loan). This means that, contrary to one claim, it wouldn’t mean people who hadn’t worked get more than those who had.

In our original proposal, we suggested that the additional amount available might be £132.50 a week for six months, providing people with £200 a week in total, including their £67.50 in JSA (which has actually now risen to £71.70 a week). These numbers could be altered, but the core rationale is three threefold.

First, for anyone earning much above minimum wage, the benefits system offers very weak protection of their income for short-term, temporary periods of unemployment. For instance, social security provides just 38 per cent of the previous average wage for a single person who also qualifies for help with rent. This compares to an EU average of 58 per cent. For those not eligible for housing support, such as the two-thirds of homeowners, the replacement rate for average earners is just 13 per cent. And it’s not that the private insurance market is filling the gap: a survey published last week by Scottish Widows found that only 5 per cent of people own an income protection policy, which would pay out if they lose their job.

The second rationale for NSI directly flows from the first: the popular legitimacy crisis facing the welfare system is not only about the sense that it pays out too much to people who have not worked, but also that it offers so little protection to those who have. A decade and a half of welfare reform has focused on increasing the conditions attached to the receipt of benefits, but has neglected the erosion of any meaningful reward for the contributions of those who have worked (outside of the state pension). Labour is right to alight on this issue as part of developing a strategic alternative to the populist and divisive pose bring struck by the current government on welfare.

However, the challenge in seeking to improve income protection and rebuild the contributory principle is that it costs money. This is where the third rationale comes in. Deploying the income-contingent loan principle in NSI means that greater security at the point of crisis can be improved without imposing considerable extra net costs. In other words, the social security system would add a new function: smoothing household income to help people to cope with the loss of a wage, keeping them out of the hands of payday lenders and loan sharks, while reclaiming the money once they are back on their feet.

Some have argued that repayment will create a disincentive for people to return to work. Clearly this risk should be monitored on implementation, and the point at which repayments began and the repayment rate could be amended to reduce this concern. But over half of people who claim JSA leave the benefit within three months; 80 per cent after a further three months. Conditionality would continue to apply, so people would be required to take up job offers (or lose access to NSI) and if they hadn’t found employment in six months they would revert to the much lower level of JSA (a strong incentive to find work within that period). Fundamentally, this policy is explicitly aimed at people who have a good work record and so are motivated and job ready.

Critics of this idea have questioned why the extra income protection provided by NSI cannot be attained simply by increasing the level of contributory JSA. The problem of course is where the money would come from (we estimated the upfront cost at somewhere between £1.8bn and £2.6bn, though it is hard to be precise). One option is redistributing money from within the existing social security budget, perhaps by lower disregards or sharper tapers on Universal Credit (or, of course, ending the protection of pensioner benefits). Alternatively, the costs could be met by extra departmental cuts, more borrowing or higher taxes. But it is highly unlikely that any party will cut public services or raise taxes to pay for a higher rate of JSA (especially with £21bn of welfare cuts that some want to see reversed potentially ahead of this in the queue).

Given all this, those of us interested in building up economic protection for working people should probably bank on having to be creative.

A National Salary Insurance system would provide people with £200 a week for six months after they become unemployed. Photograph: Getty Images.

Graeme Cooke is Associate Director at IPPR

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Ed Miliband on Brexit: Labour should never be the party of the 48 per cent

The former Labour leader has not ruled out a return to the shadow cabinet. 

What do George Osborne, Jeremy Corbyn and Ed Miliband have in common? A liking for a soft Brexit, it turns out. 

But while Osborne is responding to the border lockdown instinct of some Tory Brexiteers, the former Labour leader, along with Chuka Umunna, Lisa Nandy and Rachel Reeves, has to start by making the case to fight for Brexit at all.

And that’s before you get to the thorny and emotional question of freedom of movement. 

Speaking at a Resolution Foundation fringe event, Miliband ridiculed calls to be the “party of the 48 per cent”, in reference to the proportion who voted to stay in the EU referendum.

Remain voters should stop thinking Brexit was a “nasty accident” and start fighting for a good deal, he urged.

Miliband said: “I see talk saying we should become the party of the 48 per cent. That is nonsense.

"I don’t just think it is nonsense electorally, but it is nonsense in policy because it buys into the same problem people were objecting to in their vote which is the old ‘I’m right, you’re wrong’”. 

Remain voters shared many of the same concerns as Leave voters, including on immigration, he said. 

Miliband praised the re-elected Labour leader Jeremy Corbyn’s comments that a hard Brexit would be a disaster. He said: “We have to engage in these negotiations.”

Although he said he “anticipated” staying on the back benches, he did not rule out a return to the shadow cabinet, and urged the party to use its newly recruited member, many of whom joined under Corbyn.

Miliband was backed up by Nandy, seen as a rising star of the party, who said there was longterm dissatisfaction with jobs and wages: “You throw freedom of movement into the mix and you create dynamite.”

She also called for Labour to throw itself into Brexit negotiations: “We have been stuck between two impossible choices, between pulling up the drawbridge or some version of free market hell.

“But the truth is we are a progressive, internationalist, socialist party and we can’t afford to make that false choice.”

Reeves, who wrote in The Staggers that freedom of movement should be a “red line” in Brexit negotiations, said: “I don’t buy this idea that people who voted Leave have changed their minds.”

And she dismissed the idea of a second referendum on the eventual deal: “If people voted against the deal, then what?”

But while the speakers received warm applause from the party member audience, they were also heckled by an EU national who felt utterly betrayed. Her interruption received applause too.

Umunna acknowledged the tensions in the room, opening and ending his speech with a plea for members not to leave the party. 

Having called identity politics "the elephant in the room", he declared: “We have got to stay in this party and not go anywhere. It is not just because you don’t win an argument by leaving the room, it is because we are the only nationwide party with representatives in every region and nation of this country. We are the only party representing every age and ethnic community. 

“Stay in this party and let us build a more integrated Britain.”