Memorandum submitted by Professor Pete
Alcock (CP3)
SUMMARY
(i) The contributory principle within social
insurance schemes provides both a financial base for social security
protection and an ideological legitimacy for the redistribution
of resources and support. In practice such comprehensive protection
has not been secured within the UK National Insurance scheme,
largely because the contributory principle has not operated to
include all those in need within the scheme.
(ii) There are gaps in social insurance
cover because many contingencies associated with poverty do not
give rise to NI benefit entitlement. This has been compounded
by the collapse of the male breadwinner model on which NI protection
was initially based. NI provision has not kept pace with changes
in labour markets, family structures and demographic trends. At
the same time policy changes within social security have
restricted entitlement to NI benefits and expanded the role of
means-testing.
(iii) The advantages of social insurance
are: the contingency base, the support given to labour market
participation, the reduction in stigma, the avoidance of disincentives,
the individual base for entitlement, the existence of a nominal
insurance fund, and the administrative simplicity of the scheme.
The weaknesses of social insurance are: the changing socio-economic
environment, the impact of contribution conditions, the limited
contingencies for payment of benefits, the failure to meet the
costs of families, the regressive nature of contribution payment,
and the continued administrative fiction of the scheme.
(iv) The contributory principle appeals to
an inclusive concept of solidarity and implies a quasi-contractual
link between rights and responsibilities within social security.
This contrasts with means-testing which is based on a much more
divisive approach in which those who pay may resent supporting
those who receive—and those who receive may feel alienated
and excluded from those who pay. Without a return to social insurance
there is a serious danger that its advantages as the key integrating
principle of social security will be lost and that means-tests
will become the defining feature of social protection.
(v) Despite changes in labour market and
family structures both are still the core social relations within
British society. Social insurance protection has declined because
it has not been adapted to respond to these changes. The decline
in NI entitlement and the expansion of means-testing could be
reversed through the adoption of a modernised approach to social
insurance protection - building on the strengths of insurance
and eliminating its weaknesses.
1. THE CONTRIBUTORY
PRINCIPLE
1.1 The contributory principle within social
insurance schemes provides both a financial base for the social
security protection provided and an ideological legitimacy for
the redistribution of resources and support which is implicit
in such protection. In such a dual context social insurance schemes
draw on both the individualistic principles of private insurance
protection and the solidaristic principles of social security.
1.2 The financial base is represented in
the UK by the NI fund. This is composed of contributions from
employees, employers and a supplement by the Treasury. Such a
tripartite structure has always characterised NI protection—when
it was first introduced it was known popularly as "ninepence
for fourpence". In fact, of course, the fund exists as a
financial base in an accounting sense only for the resources are
actually collected and distributed on a "pay-as-you-go"
basis. Each year the "fund" is exhausted and future
benefit entitlements must be met from future contributions.
1.3 Ideological legitimacy nevertheless
flows from this contributory model. The link between payment by
contributors and entitlement to future benefit provides a strong
model of entitlement for NI claimants, many of whom may believe
that they have "paid for" the benefits which they claim.
More generally the social insurance base symbolises an inclusive
model of social security protection—at different times of
our lives, we all have the opportunity to pay in and to get back
contributions. This is sometimes described by social policy analysts
as horizontal redistribution—although, as discussed
later, its legitimacy is undermined by the exclusion of many of
those in need of support from social insurance protection.
1.4 Social insurance can be compared to
private insurance in that the contributions made are similar in
some ways to the premiums paid to secure private protection. Regular
fixed payments are made and in return, if certain specified risks
are encountered, protection for contributors is provided. However,
as many commentators have pointed out, there are many differences
between private insurance and social insurance. The two systems
can not readily be inter-changed, and social insurance has developed
more as a form of public social security protection than as substitute
for private insurance cover.
1.5 Therefore it is the solidaristic principles
of social insurance which are more important in defining the role
of the contributory principle within current NI provision. The
Beveridge model of social insurance, on which the British scheme
is built, was intended as the basis of state protection against
poverty; and it was organised on a contributory basis because
Beveridge and the other policy-makers believed that this would
ensure comprehensive protection for all citizens. In practice
such comprehensive protection has not been secured, in part because
the contributory principle has not operated to include all within
the scheme. The fundamental question facing those concerned with
the future development of social insurance is whether such practical
problems can be overcome whilst retaining the solidaristic principles
which underpin the scheme.
2. THE ORIGINS
AND DEVELOPMENT
OF NATIONAL
INSURANCE
2.1 The NI scheme operating in Britain is
not, of course, a unique example of social security protection.
A similar social insurance model has been developed in many other
welfare capitalist countries, especially within Western Europe.
Each of the national schemes is, of course, distinct in some features.
Despite this, however, a loose distinction can be drawn between
those social insurance schemes in much of continental Western
Europe, which are based on principles developed in Germany by
Bismarck; and the scheme still operating to a large extent
in Britain, which is based on the principles outlined by Beveridge
in his famous report of 1942. These are usually distinguished
as the Bismarck and Beveridge traditions, and other countries
have also drawn variously upon them.
Bismarck
2.2 The basic features of the Bismarck tradition
are its relatively strict adherence to the insurance notion and
its focus on providing social security protection for those leaving
established positions in the labour market either temporarily
(due to sickness or unemployment) or permanently (on retirement).
In Bismarck schemes contributions into the social insurance fund
are made by employees, and their employers, in the expectation
that these will provide an insurance protection for them on absence
from the labour market. The labour market is thus seen as the
major source of income for all people in the society—all
are either workers or the dependents of workers. And social security
aims to protect incomes when the labour market cannot provide.
The circumstances and needs of those outside the labour market
are consequently not addressed.
2.3 The close link between labour market
status and social security protection is maintained in Bismarck
social insurance schemes by the payment of benefits which are
related to the earnings received whilst in employment. In a more
or less direct sense therefore the level of contributions paid
determine the amount of protection provided. This relationship
is also guaranteed organisationally by the financial structure
of the schemes, which operate as separate insurance funds, ensuring
that their resources are sufficient to meet the benefit needs
of contributors, with a fairly strict actuarial link maintained
between contributory liability and benefit entitlement. This financial
structure means that contribution and benefit levels are fixed
according to the needs, rules and policies of the social insurance
scheme, and are more or less independent of the taxation or redistribution
policies of particular governments. In most cases this is also
guaranteed at an organisational level by the administration of
insurance schemes by agencies, such as trade unions, outside of
the formal political structures of the nation state. Bismarck
social insurance schemes operate independently and are therefore
free from direct interference by government.
Beveridge
2.4 By contrast Beveridge's primary aim
for social security was rather different and focused on the prevention
of poverty rather than the protection of wage levels. Thus, although
he was attracted to the insurance principle and believed that
it would provide a popular basis for social security protection—"The
capacity and desire of British people to contribute for security
are among the most certain and impressive social facts of today"
(p.119), he also wanted insurance protection to provide a comprehensive
scheme to prevent poverty. Contributions to, and benefits from,
the Beveridge scheme were thus fixed at a flat rate, aiming to
provide a subsistence income rather than a continuation of labour
market wages. In addition to employee and employer contributions
the scheme also relied upon a treasury supplement, financed out
of general taxation, and included in it a contribution towards
the cost of the National Health Service. Although this was to
be identified as a separate insurance fund, the scheme was to
be established and run by government as a national social security
service. Beveridge described his proposals as a "British
revolution"—they were intended to build on the strengths
of the structural features of existing provision, but to extend
these into a comprehensive state service.
National Insurance
2.5 In fact the National Insurance (NI)
scheme established in Britain after the second world war did not
follow entirely the recommendations outlined by Beveridge, although
in principle the structure of the scheme was largely similar.
In particular, to ensure that all current pensioners were provided
with insurance protection, contribution conditions for them were
waived and benefits paid out of the contributions collected under
the new scheme. This meant that, rather than acting as a funded
insurance scheme, NI operated on a "pay-as-you-go" basis
with the cost of current benefits being born by current contributions
paid—in effect a form of earmarked taxation rather than
strict insurance protection.
2.6 The benefit rates established in the
NI scheme were also lower than the subsistence levels proposed
by Beveridge, in part in order to ensure incentives both to undertake
paid employment and to invest in additional private insurance
protection. And the contingencies covered by benefit protection
were reduced, with unemployment benefit being restricted to a
period of only six months (increased in 1966 to twelve months,
although since reduced to six months under the Jobseekers' Allowance
(JSA) reforms) and the proposed allowance for divorced women being
dropped.
2.7 In a number of significant ways therefore
the National Insurance (Beveridge) scheme in Britain is quite
different to the social insurance (Bismarck) schemes found in
much of continental Western Europe. And these differences have
remained despite the many developments to the NI scheme which
have been introduced in the fifty years since then. Earnings-related
contributions were introduced in Britain in the 1960s, together
with an earnings-related supplement paid for the first six months
of unemployment after 1966, which was withdrawn in 1982-83. In
the 1970s benefit protection was extended to married women and
an earnings-related pension scheme, first mooted in the 1960s,
was introduced, although protection under it was reduced in the
late 1980s.
2.8 The extensions to the scheme in the
1960s and 1970s were followed by restrictions and reductions in
the 1980s and 1990s. Throughout the period, however, the ability
of the NI scheme to act as a comprehensive protection from poverty
has been continually called into question, and its inter-dependency
with other aspects of the social security service has become ever
more apparent. In practice social insurance in Britain operates
alongside other forms of social security protection based upon
social assistance and universal support.
Social Security
2.9 The common characteristic of social
insurance schemes is the link which they provide between the payment
of contributions into a scheme for social security and the receipt
of benefits from the scheme at times of need. The payment in anticipation
of the need provides the insurance aspect of the scheme. The obligation
of all to pay, in order for all to benefit, provides its social
context. Insurance schemes thus meet the two major requirements
of any social security provision:
— protection from poverty by redistribution
of resources to groups identified as being in need;
— social integration by the provision
of a close link between contributions from citizens and rights
to benefit.
Thus the link between payment and benefit has
traditionally made the notion of social insurance a popular feature
of social security provision in most welfare capitalist economies.
2.10 The Beveridge social insurance scheme
in Britain was developed in this context as a feature of the social
security provision provided by the state, rather than as a public
substitute for the limitations of private insurance protection.
It was an alternative to the Poor Law, not an alternative to the
commercial insurance market; and its aim was to prevent poverty
rather than to protect individual income expectations.
2.11 In preventing poverty (or Want
as Beveridge called it) social insurance is predicated upon the
assumption that the experience, and the risk, of poverty is cyclically
related to life course development. This perspective was drawn
from Rowntree's seminal studies of poverty in Britain earlier
in the century in which periods of poverty were assumed to be
associated in particular with life cycle events such child birth
and retirement. These could be contrasted with periods of full-time
waged employment when the risk of poverty would be removed. Poverty
could thus be prevented by providing social security protection
which redistributed income over the life cycle, collecting contributions
in periods of employment and providing benefits in periods of
need—horizontal redistribution. It is a form of social security
which is closely associated with the Beveridge model of social
insurance, and which he believed would receive widespread support
because of its appeal to collective self-protection.
2.12 Although this model of social security
is based on collective self-protection, it is a model of self-protection
predicated upon, and organised around, a wage labour market based
upon full, and full-time, employment. The benefits provided by
the scheme are funded largely from contributions made by employees
and their employers; and they are paid to claimants on condition
that they are absent from, and thus no longer supported by, the
labour market. This economic history of social insurance in Britain
is closely related to the history of the development of modern
labour markets. In some ways social insurance might be regarded
as the "natural" social security protection for a capitalist
labour market economy. As discussed shortly, however, the changes
which have been taking placed in recent years in such economies
cast doubt upon the ability of social insurance to continue as
an effective means of ensuring such security.
3. EXCLUSION
FROM NI PROTECTION
3.1 The social insurance model of social
security protection has not provided social security protection
for all because it was predicated upon a full employment labour
market and stable nuclear family structure, and has not kept pace
with social and economic changes which have been experienced in
Britain, and in other welfare capitalist countries, over the past
fifty years. Social insurance assumes that horizontal redistribution
can prevent poverty by meeting the relatively limited needs for
a substitute income during absence from the labour market. In
the 1990s, however, absence from the labour market is a more widespread,
and more permanent, phenomenon, affecting particular groups of
people much more seriously than others, and requiring vertical
redistribution from those who have secure jobs and sizeable
incomes to those who have little prospect of either. Thus
there are large, and growing, gaps in the supposedly comprehensive
insurance coverage.
Gaps in Social Insurance
3.2 Long term unemployed—Social insurance
provides protection for unemployment based on the assumption that
absence from the labour market will be a temporary phenomenon.
Thus NI unemployment benefit has only ever been paid for a limited
period. This period was extended to twelve months in 1966, but
since the introduction of the new JSA it has been reduced again
to six months. However, with the abandonment of full employment,
the numbers of people unemployed long term has being growing dramatically
in recent times. This increase in long term unemployment has left
many people outside of the labour for long periods of time—but
no longer covered by social insurance protection.
3.3 Youth unemployed—Unemployment
has, of course, more generally been increasing significantly over
the last two decades. This has meant that many young people leaving
school have been unable to get jobs within the labour market.
As a result of this they have not been able to make any contributions
into the NI scheme, and, because some contributions must have
been paid before any benefits can be received, they are not entitled
to any protection. The numbers of the youth unemployed, aged 18-19,
have also grown dramatically in the 1980s and 1990s and most of
these will be excluded from social insurance protection.
3.4 Lone parents—The numbers of lone
parents have also increased significantly in recent years, in
particular because of the increase in rates of separation and
divorce. Family life is not as stable as Beveridge had expected
it to be. Many lone parents, predominantly mothers, have not had
any recent connection with the labour market because of their
child care responsibilities, however, and have not made contributions
into the NI scheme. They may also, because of the need to care
for their children, not be deemed to be unemployed. Consequently
they are not entitled to insurance benefits and around two thirds
are dependent upon Income Support.
3.5 Sick and disabled—Although social
insurance schemes generally do provide for absence from work due
to sickness, an increasing number of the long term sick and disabled
are excluded from protection because their condition arose before
they were able to enter the labour market and pay contributions.
These numbers too are growing, in part as a result of improvements
in medical care, but primarily because of the increase in unemployment
which has made it especially difficult for the non-able-bodied
to secure full-time work.
3.6 Flexible employment—Some people
who have been able to secure employment, however, are nevertheless
excluded for insurance protection. The growth in unemployment
has also been accompanied by an increase in the amount of part-time
employment, and contract and seasonal working. Because the rates
of pay for work of this nature are frequently below the threshold
for payment of NI contributions, or when averaged over the year
any contributions which have been made are inadequate, people
becoming unemployed from such jobs are not entitled to insurance
benefits, and so are forced onto social assistance. It has been
estimated that as many as two million employees are excluded from
NI protection in this way.
3.7 Self employed—Self-employed people
were largely ignored by the post war NI scheme in Britain, and
have been to some extent ever since. The self-employed do pay
special contributions, but they are specifically excluded from
receiving unemployment benefit. Self-employment has grown from
eight to twelve per cent of the labour force in the past two decades—from
under 2 million to over 3 million. Unfortunately self-employment
is no guarantee against unemployment. Many self-employed businesses
fail; but their owners cannot claim social insurance protection.
3.8 Marital breakdown—Divorced people,
especially women, may be excluded from receiving insurance protection
on reaching retirement. Married women who have remained at home
rather than in employment, as anticipated by Beveridge, do not
have contribution records of their own, and thus their pension
entitlement depends upon the contribution record of their husband.
When divorce takes place this is lost, and it is a significant
loss, especially where the husbands entitlement includes an earnings-related
element. For many older divorced women this has resulted in a
move onto dependency upon assistance benefits.
3.9 Carers—It is not only divorced
women who may lose insurance protection because of their long
term absence from the labour market, however. Many women, and
some men, give up paid employment to care for chronically sick
or disabled relatives, and the numbers of such carers are growing
rapidly. Although they may get some exemption from the contribution
conditions for retirement pensions under the "home reponsibility
protection" rules, these carers are not paying any contributions
to the NI scheme and are thus not acquiring any benefit protection
to cover them whilst they are caring or, perhaps more significantly,
when they cease to do so. For women in particular exclusion from
insurance protection is one of the hidden costs of caring.
3.10 Employment breaks—Carers are
often excluded from insurance protection because in effect they
have interrupted contribution records. Other people too may experience
significant interruptions in their employment activity which means
that they are not making insurance contributions—and in
most cases these people do not benefit from the limited home responsibility
protection either. Interruptions in employment may occur, for
instance, because of absence abroad or because of entry into further
or higher education, both activities which have become more frequent
amongst people of working age in recent years. Interruptions due
to strike action have recently been less frequent, but these periods
too may exclude people from future NI protection, as some of those
involved in the long running miners dispute of the mid 1980s discovered
after they were later made redundant.
3.11 Partial contributions—Interruptions
in contribution records mean that claimants are excluded entirely
from short term insurance benefits, such as unemployment. However,
people with partial contribution records can still claim an insurance
pension on retirement, but the amount of this will be reduced
by the proportion of the contributions not paid. This means that
only a fraction of the pension is received, and in practice this
is usually not sufficient to prevent claimants having to rely
in addition on assistance protection, thus removing any real value
of the insurance protection. As with other gaps in insurance coverage
the numbers of people receiving partial retirement pension has
also been increasing in recent years.
The collapse of the male breadwinner
3.12 Many of the gaps which have appeared
in the social insurance scheme in Britain, and elsewhere, have
been associated with the failure of one of the major assumptions
around which insurance protection was designed—the support
provided by the male breadwinner. Beveridge, and Bismarck before
him, had assumed that full-time employment would be available
for for all men, paying wages which, with the help of Family Allowances,
would permit them to support a wife and family. In theory this
meant that married women would not need, or want, to work—in
Beveridge's own terms they would have "other duties".
3.13 However, both before and after the
war a significant minority of married women continued to engage
in paid work; and since then the proportion in employment has
grown dramatically. Much of the increase in married women's employment
has been in response to demand within the labour market, and,
in recent years in particular, much of that demand has been for
part-time rather than full-time employment. However, women have
also worked because they have needed to, because their husband's
wages were not enough to support the family. Despite the high
profile given in some trade union campaigns to the need to protect
the "family wage", many men in low paid employment have
never been in a position to provide for all of their family's
needs, and women's work, whether full-time or part-time has been
essential in the struggle to make ends meet.
3.14 As low pay has become more widespread
in the last decade or so—and wage differentials are now
wider than at any time since the end of the last century—the
incidence, and the importance, of married women's employment has
increased. Married women now enjoy full insurance protection within
the NI scheme in Britain, where they earn enough to pay the contributions;
and equal pay legislation has reduced—but not removed—the
differential between men's and women's rates of pay. Furthermore
the massive increase in unemployment has meant that many men can
no longer even hope to be able to provide for their families through
employment.
3.15 The male breadwinner, working to provide
for his wife and children, has always been at best a blurred and
partial image of the realities of our unequal labour markets;
and many married women have had to engage in paid work themselves
in order to ensure an adequate family income. In the 1990s, however,
this image looks distant as well as blurred. Male breadwinners
are not major providers for large numbers of families, and the
insurance system based upon supporting this role is unable to
provide for these needs too.
From Insurance to Assistance
3.16 The main consequence, within the social
security system, of the failure of the social insurance scheme
has been the increasing reliance of larger numbers of people on
means-tested assistance benefits. The safety net role which Beveridge
envisaged for his secondary status assistance scheme has been
transformed into the major source of protection for many claimants.
More people get assistance benefits, because more are excluded
from insurance benefits, because many on insurance benefits find
that these are not sufficient to meed their basic needs, and because
new assistance benefits to neet new needs have been introduced.
The vast majority of unemployed claimants are now dependent in
whole or in part on Income Support or means-tested JSA.
3.17 The number and range of means-tested
assistance benefits has also begun to grow. Means-tested support
for rent and rates for people on low wages was extended onto a
national basis in the early 1970s; and at the same time a means-tested
benefit to supplement the incomes of people with children was
introduced: Family Income Supplement, now Family Credit. These
were not just additions to the assistance scheme, they also constituted
a major extension of the role of social security into the subsidisation
of low wage employment, taking social security into the labour
market. Means-tested provision of school meals, and school clothing
also expanded, as did the role of means-tested access to many
aspects of health service provision, which otherwise would have
been charged for—notably prescriptions for drugs. Many of
these means-tested benefits have been further expanded under New
Labour, with the new Working Families Tax Credit moving means-tested
support for low wages into the tax system, whilst retaining the
basic principles of protection.
3.18 The problems associated with the growth
of means-testing have, however, been compounded by the simultaneous
expansion during the post-war period in the number of private
schemes for social security protection. Some private benefits
are organised on a commercial basis and bought by individuals
as additions to their basic state benefit, as has been in particular
the case for pension provision in the recent years. But most private
benefits have been provided on an occupational basis by employers
as part of packages of fringe protections for their employees,
often negotiated for by trade unions. Occupational benefits include
sick pay and maternity pay, and occupational pension schemes;
and such benefits can provide additional income to supplement
the low levels of insurance protection, especially for pensioners.
3.19 Unless they do provide a very significant
additional income the impact of any such additions is likely to
overlap disadvantageously with the expanded assistance benefits.
For instance, pensioners with a small occupational pension—and
many early occupational pension schemes provide only very small
payments—are likely to find that, together with their basic
NI pension, this takes them just above Income Support level. The
new minimum income guarantee for pensioners will ensure that all
do at least reach the Income Support level; but will compound
the disincentive effect of such small-scale occupational pension
protection.
Structural changes
3.20 These changed circumstances in which
social insurance is now working are, of course, the result of
social and economic changes which have displaced the assumptions
upon which protection was intended to operate. The most important
of these changes has been the restructuring which has been taking
place within the labour markets of all the major Western capitalist
economies. This change is sometimes described as the shift from
"Fordism" to "post-Fordism"—the
replacement of full-time, largely male, jobs in large scale manufacturing
with more "flexible", part-time employment primarily
in new service industries such as leisure and tourism. Many of
these new jobs are low paid or seasonal and do not in practice
provide employees with protection under social insurance schemes.
3.21 The decline in manufacturing employment
has also, of course, been the major cause of the massive increase
in unemployment which has put enormous pressure on the social
insurance scheme. In Britain insurance contribution rates were
increased significantly in the early 1980s to cover the extra
cost of this. However, many of the unemployed are the long term
or youth unemployed who are not protected at all by such benefits.
3.22 The other major plank of the post war
insurance base, the nuclear family, has also been experiencing
major restructuring. In particular, there has been an increase
in the divorce rate and a growth in the number of lone parent
families. As a result of this families are smaller, and family
relationships frequently more short-lived. There has not been
such a dramatic change in the rate of marriage; but marriages
take place at a later age, many marriages are now remarriages
for one or both partners, and "reconstituted families"
with mixtures of step and natural children are common. The rights
and protections which might be expected to arise from marriage
and the nuclear family, for instance to the pension entitlement
of spouses, are thus complex and fractured; and the obligations
of partners frequently extend beyond the current marital bond.
For women in particular this has meant that reliance on means-tested
benefits has become much more widespread.
3.23 Finally social structures are also
undergoing demographic change, although of course they always
are. Over recent times there has been a decline in the birth rate,
an increase in longevity, and an increase in the numbers of chronically
sick and disabled people. These changes are perhaps to be welcomed,
but they have changed the ratio of workers to dependents within
the society as a whole, and have increased the need for carers,
most of whom work outside the formal labour market. For a social
insurance scheme predicated upon labour market participation and
family dependency, except for limited and predictable periods
within the life cycle, these changes have created significant
pressures.
3.24 Of course the impact of these changes
has not gone unnoticed by politicians or policy-makers. They have
been only too acutely aware of the pressures which social and
economic restructuring have placed on social insurance and the
other aspects of the social security system. And policy changes
have been introduced, in part at least in an attempt respond to
these pressures. In the 1980s there was a massive expansion of
means-testing following the "Fowler Review" and the
1986 Social Security Act; and in the 1990s there was the introduction
of the JSA and Incapacity Benefit. However, the policy responses
which have been introduced in recent years in response to pressures
on the social security system have operated in practice to compound,
rather than to resolve, the limitations of the social insurance
scheme.
Policy Changes
3.25 In general terms the most significant
policy change made by government in the last two decades has been
the abandonment of full employment as a major goal of economic
policy planning. Although not directly a feature of social security
policy, this has had a major impact on the demand for benefit
protection, and consequently on the capacity of the benefit schemes.
The pressure of unemployment has also resulted in direct changes
to social security policy, however, the cumulative effect of which
has been to erode the insurance base.
3.26 The scope of social insurance has been
directly reduced by the introduction of a number of restrictions
in the entitlement criteria for NI benefits. The contribution
conditions have been tightened. For short term benefits, such
as unemployment, payments (or credits) must have been made in
the previous two years, as opposed to one year before the
change. For long term benefits, primarily retirement pension,
the calculation of the amount of earnings-related supplement has
been narrowed with effect from 1999.
3.27 The eligibility criteria for NI benefits
have also been restricted. Both the JSA and Incapacity Benefit
reforms were aimed at tightening the criteria for entitlement
to receipt of benefit; and the further proposed reforms in the
1999 social security bill will be likely to restrict these further,
for new claimants at least. The raising of the pension age for
women to sixty-five is also a levelling down move to equal treatment
in pension entitlement.
3.28 In additions to the restrictions on
entitlement have been reductions in levels of benefit. Since 1980
pension rates have only risen in line with price (not wage) inflation,
which has resulted in a major potential loss. In the same year
the short term benefits for unemployment and sickness were also
reduced in value against inflation; and, following this, the earnings-related
supplement to these benefits was withdrawn and the addition paid
for the costs of dependent children removed.
3.29 The scope of social insurance has further
been reduced by the "privatisation" of some of the protections
previously provided within the NI scheme. In the early and mid
1980s protection for short term sickness and maternity were removed
from the state scheme and transferred to employers. Initially
financial support for these continued via a rebate on NI contributions
for employers; but this too has now been removed. Private pension
provision has also expanded significantly, with many contributors
opting out of NI earnings-related pension protection (SERPS) as
a consequence. The current planned changes to pension provision
will also further exacerbate this trend by removing SERPS protection
from middle and higher income earners.
4. THE ADVANTAGES
OF SOCIAL
INSURANCE
The contingency base
4.1 Social insurance targets benefit protection
onto groups identified by criteria known to be associated with
risk of poverty because of absence from the labour market, such
as unemployment, chronic sickness and retirement—although
in the case of retirement the link between labour market absence
and pension entitlement has been clouded by the payment pensions
to all over pension age regardless of labour market status. As
long as the labour market remains the major means of income distribution
and financial security within the economy, then such targeting
is an effective means of seeking to prevent poverty.
4.2 Establishing entitlement to social insurance
benefits through membership of a contingency group is also administratively
simple both for claimants and for benefit providers. Proof of
status can be linked to clear eligibility criteria, such as sickness,
pension age or availability for work, without the need for complex,
and intrusive, needs assessments and tests of means. Take-up of
insurance benefits is therefore easy to encourage, and take-up
levels for such benefits are relatively high. Enforcement of eligility
criteria can be used to ensure that only those genuinely absent
from the labour market receive protection, although there are
currently problems over the treatment of part-time workers here,
which have been accentuated the massive growth in this area of
employment.
Support for the Labour Market
4.3 Because social insurance is a form of
social security based on wage substitution, it provides indirect
support for the operation of the labour market. Thus those in
work receive wages, and those absent from work receive benefits;
and since benefit levels are set below wage levels all are encouraged
to work. This is logical, and popular; and it provides a natural
support for labour discipline. It can be contrasted with assistance
benefits which, because of their means-tested base, frequently
operate as wage supplements and thus overlap with support from
the labour market, with the result that income is no longer dependent
upon employment status.
4.4 The wage substitution basis of social
insurance also lends itself to provision of earnings-related benefit
protection, as is the case in most Bismarck schemes—and
was in Britain from 1966 to 1983. Earnings-related protection
means that financial obligations undertaken whilst in employment
can still be met during absence from the labour market, preventing
an immediate drop into poverty; and provides a more tangible return
for contributions made, where these too are related to earnings.
State earnings-related benefits also reduce the need for separate
private protection, and are cheaper and more efficient to organise
on a mass scale than private provision.
Reduction in Stigma
4.5 Experience of stigma has often been
associated with receipt of social security benefits, both in the
eyes of claimants and of the wider population. Stigma is associated
in particular with dependency upon assistance benefits, because
of their links with the Poor Law and the unpopular public assistance
schemes of the inter-war period. It was Beveridge's intention
that the payment of insurance benefits as a return for contributions
made would avoid such stigma here, and would encourage claimants
and others in the belief that these benefits had been acquired
by right, rather than through need.
4.6 This "horizontal equity" basis
of social insurance still to some extent remains, for instance
in the greater political and popular support shown for pension
entitlement, which is perceived as being earned by the contributions
of a lifetime's work. Although in practice the link between contributions
paid and benefits received is a somewhat tenuous and often arbitrary
one, the notion of a right to such benefits remains a widely held,
and generally positive, one.
Avoidance of Means-Testing
4.7 The absence of means-testing in social
insurance schemes means that many of the disadvantageous features
of means-tests in determining benefit entitlement can be avoided.
Because means-tested benefits are only paid after all other resources
have been accounted for, people dependent upon means-tested benefits
do not derive any advantage from savings, maintenance payments,
private investments or insurance, or any other non-earned sources
income - sometimes known as the savings trap. Securing
protection through such private measures is thus indirectly discouraged
within assistance provision, albeit that many claimants with such
resources only discover too late that these will be of no overall
practical benefit to them. Conversely, as Beveridge envisaged,
social insurance benefits provide a platform on which additional
private protection or private resources can be built without fear
of financial penalty.
4.8 Where means-tests extend to the supplementation
of wages then this problem becomes perhaps even more serious,
and is experienced as the poverty trap. Benefits which
supplement earnings must be withdrawn if earnings rise—with
the result that the recipient may at the end of the day be no
better off. Wage supplement benefits, such as Family Credit/Working
Families Tax Credit and Housing Benefit, are not in practice withdrawn
pound for pound as income rises, and the 100 per cent plus marginal
tax rates experienced by recipients in the 1970s have now been
removed. Nevertheless marginal tax rates of over 90 per cent remain
for some, and the new tax credit scheme will in practice spread
high marginal rates over a wider proportion of the low paid. Means-tested
protection thus can act as significant disincentives to-self-improvement;
and such disincentives are an inherent feature such benefit protection—whereas
social insurance avoids such disincentive effects because benefit
entitlement is not tied directly to current income levels.
Individual Entitlement
4.9 Entitlement to insurance benefits is
established through contributions made in the labour market. Although
initially designed as a scheme to support male breadwinners, insurance
protection is now provided on an individual basis to those who
meet the contribution conditions, and married women receive the
same protection as their husbands. This contrasts with assistance
benefits where couples are treated differently to single people,
are assumed to be entirely dependent upon each other, and are
paid at a lower aggregate rate of benefit.
4.10 This means that with means-tested benefits
there is a financial penalty for benefit claimants on marriage,
or cohabitation; and that there is no incentive for the partner
of a non-working spouse to undertake paid work, full-time or part-time,
because this will lead to a loss of benefit for both. The effect
of aggregating the income of couples to determine assistance benefit
entitlement means that partners are therefore discouraged from
working, and there is some evidence to suggest that in practice
this has reduced the economic activity rates of the partners of
the unemployed. However, social insurance benefits, which are
paid to individuals to provide protection for them alone, do not
penalise either marriage or working spouses in this way.
The Insurance Fund
4.11 Although the NI scheme operates in
practice on a pay-as-you-go basis and does not have an independent
fund in the way that some continental, Bismarck, schemes do, the
separate collection, accounting and distribution of insurance
contributions does provide the insurance scheme with a kind of
earmarked, or hypothecated, taxation base. It has often been argued
that NI contributions are paid more willingly than other forms
of direct taxation, because they are known to provide social security
protection, and to provide, at least in theory, for a separate
insurance fund protected from direct interference by government.
4.12 Certainly the open existence of a hypothecated
tax for social security makes the cost of such social protection
much clearer and more readily subject to public scrutiny; and
any additional costs imposed on the scheme by policy or structural
changes can consequently be passed directly on to contributors.
This in effect is what happened when unemployment levels increased
dramatically in the early 1980s, and contribution rates were increased
from seven to nine per cent of relevant income—at a time
when the general policy of government was to reduce levels of
direct taxation.
4.13 The contributions made by employers
to the benefit fund on behalf of their employees are also a particular
feature of social insurance protection. In addition to giving
employers a financial stake in the public social security system,
these reinforce the notion of their general obligation to provide
support for the wider labour force from which their current workers
are drawn. It is because of the continued existence of a reserve
labour force that employers are able to expand and contract as
the markets for their products allow. There is both logic and
justice in spreading the cost of supporting this reserve force
across all employers in proportion to the extent to which they
draw upon it. An insurance fund into which employers, as well
as employees, pay thus creates a link between social security
and the labour market in fiscal policy which mirrors the reinforcement
of labour discipline which insurance benefits provide at the individual
level, as discussed above.
Administrative Convenience
4.14 Because of their relatively simple
benefit base and entitlement criteria, social insurance benefits
generally have high levels of take-up amongst claimants, especially
when compared to means-tested benefits. This is an advantage for
users. The simple administration of the scheme is also an advantage
for providers, however. Social insurance benefits are relatively
cheap and easy to deliver. The administrative costs of insurance
benefits are around 3 to 4 per cent of the overall budget, compared
to around 11 per cent for Income Support and 15 per cent for Housing
Benefit—and for discretionary provision such as the Social
Fund the proportion rises to around a third. In terms of cost
effectiveness within public expenditure this is a significant
difference.
5. THE WEAKNESSES
OF SOCIAL
INSURANCE
Socio-Economic Context
5.1 In their different ways both Bismarck
and Beveridge schemes for social insurance are predicated upon
the existence of a labour market in which (near) full, and full-time,
employment is expected to provide the primary source of income
for all who are able to undertake it. The restructuring of the
labour markets on which these expectations were based has discredited
this expectation, and undermined the ability of a labour market
based social insurance scheme to provide comprehensive social
security protection.
5.2 Many groups of unemployed workers are
excluded from insurance protection: the long term unemployed,
the youth unemployed, the low paid, part-time workers, seasonal
and casual workers, the self-employed, and others. It is a long
list, and the numbers on it are growing all the time. Unless social
insurance can adapt to restructuring within the labour market
it will be unable to occupy a central role in social security
provision.
5.3 Linked to this labour market restructuring
are changes in family structures and the demise of the male breadwinner
model. The shift of insurance protection in Britain onto an individual
model of protection for both men and women, has been a partial
response to this; but the continued failure in practice to recognise
new patterns of employment and new family structures and obligations
means that many individuals, and their families, remain excluded
from insurance protection.
Contribution Conditions
5.4 Although in principle the contributory
basis of social insurance protection provides the guarantee of
a benefit as of right at times of need, in practice the contribution
conditions in operation prevent many people in need from receiving
benefits. Tight contribution conditions aim to ensure that only
those who have paid towards the cost of their benefits receive
them; but in a pay-as-you-go scheme, such as Britain's, the logic
of the actuarial insurance link is fictitious, and the contribution
conditions become arbitrary and exclusive.
5.5 This lead to gaps in insurance protection
resulting from the exclusive nature of contribution conditions
as discussed earlier. In particular contribution conditions exclude
women who have given up work in order to care for children, partners
or other relatives, who, if they are not supported by partners,
end up on assistance benefit. They also exclude students and those
who have been abroad, who have paid insufficient contributions;
and those in low wage employment who are earning below the threshold
for contribution liability.
5.6 It is sometimes argued that, despite
the arbitrary and exclusive nature of the contribution conditions
for short term benefits, they do have a more logical link to entitlement
to pension protection. This is true to an extent, as the length
and size of contributions made do affect pension entitlement.
However, for the basic pension the lower rate paid to those with
inadequate contribution records is generally not sufficient to
lift them above dependence on Income Support, and so in practice
this is of little real value to them. This is likely to be compounded
by the introduction of a universal income guarantee for pensioners.
Within the earnings-related scheme contributions do determine
entitlement; but here their effect, ironically, is to make it
more of a contribution-related scheme than an earnings-related
one. And the restrictions upon when contributions can be counted,
especially after 1999, mean that for many contributors payments
made at crucial stages of their working life are in practice ignored.
Contingency Benefits
5.7 Insurance benefits are paid to people
in contingencies likely to be associated with risk of poverty.
This helps these benefits to act to prevent poverty; but only
in so far as the contingencies covered are closely, and exhaustively,
linked to poverty risk. However, there are some contingencies
with a high risk of poverty which are not included within insurance
protection, such as carers and lone parents. These were circumstances
not recognised as important or significant at the time when the
NI scheme was established in Britain, and nothing has been done
to rectify this since.
5.8 Conversely, however, there are some
contingencies which are protected by social insurance benefits
even though, according to some at least, many of the recipients
of those benefits would not without them otherwise be poor. This,
for instance, may apply to many of the married women who, having
paid contributions whilst in employment, are therefore entitled
to benefit once they are unemployed, even though their husbands
may still be in employment and thus willing and able to support
them. Of course this does assume that working men are willing
support their dependent wives; and this is an assumption which,
in some circumstances at least, is open to question.
5.9 The other contingency covered by insurance
which may include significant numbers of non-poor is those over
pension age. Although research has always revealed the elderly
to be one of the major groups of the, the wider investment in
occupational and private pension protection has meant that for
some more recently retired people, with extensive pension cover,
retirement no longer marks a drop into poverty. And for these
new pensioners insurance protection acts in practice as additional
income rather than basic support. However, although they may be
growing in number, it should be noted that these relatively well-off
older persons (WOOPIES) still only constitute a minority
of those over pension age and are concentrated in particular amongst
the younger pensioners in certain social groups.
Family Protection
5.10 The individual basis for determining
the entitlement of insurance benefits may mean that some individuals
are entitled to protection even where their families may be able
to support them. It can also mean, however, that some individuals
receiving the flat rate benefits provided within the insurance
scheme find that these are not sufficient to support the families
which depend on them. This has particularly become the case since
the withdrawal of the additions for dependent children from NI
benefits in the 1980s and the fall in value of Child Benefit.
5.11 The Family Allowances introduced in
the 1940s were only intended to make a contribution towards the
costs of children. This partial coverage remained a feature of
the new scheme for Child Benefit and was accentuated in the 1980s
when the benefit was not increased in line with inflation. Child
Benefit is thus some way below the basic minimum support for children
provided by means-tested provision. Insurance claimants with families
are thus likely to find that their individual insurance protection
still leaves them in need of means-tested support and thus they
will have to claim both, nullifying the advantages of the separate
insurance scheme.
5.12 The flat rate insurance protection
is also not sufficient to meet the housing costs of most claimants,
especially those with families and therefore larger houses. Although
the original NI benefits did include a standard notional amount
for rent, this was quite inadequate to cover the real rental costs
of many, and since then as housing costs have risen this problem
has become worse. However, the full costs of rents, and mortgage
repayments, are met by Income Support; and Housing Benefit also
assists with rental costs for those above these levels. Insurance
beneficiaries end up claiming such means-tested support therefore,
and once again are thrown into additional dependency upon assistance
benefits.
5.13 In part, it might be argued, the overlap
with assistance benefits here is a result of the fact that, relatively
speaking at least, insurance benefit levels are too low. However,
the problem is in reality more complex than this. It is a result
of the interaction of the individual benefit base within insurance
protection with the family and other responsibilities of individual
claimants. If the support provided for these other needs is in
practice part of social assistance protection, then insurance
beneficiaries will inevitably be drawn into dependency upon this
and the comprehensive nature of insurance protection undermined.
Contribution Base
5.14 Although the contribution base might
appear to be the essence of insurance protection, in a pay-as-you-go,
Beveridge, insurance scheme such as Britain's this contribution
base is really largely fictitious, and may even serve to disguise
real policy issues, and practical problems, within insurance protection.
It was Beveridge's belief that payment of contributions for insurance
protection would be a popular means of providing for social security,
and this belief has been maintained by others since. However,
since payment of contributions is compulsory, this belief has
never been securely tested; and what limited survey evidence there
is on attitudes to contributions is rather inconclusive.
5.15 Whether or not the belief is widely
shared, however, it is certainly largely a myth. The link between
contributions made and benefits received is in principle a tenuous
one, and in practice relies upon future government policy to maintain
future levels of contribution sufficient to meet benefit needs.
Insurance contributions are thus hypothecated taxes rather than
funded investments. And, as was revealed in the 1980s, the levels
of these taxes can be adjusted by government in order the meet
broader fiscal goals. Contribution levels were raised early in
the decade, at a time when benefits were being cut, and later
were maintained so that the Treasury supplement to the NI scheme
could be reduced.
5.16 If insurance contributions are not
supporting a separate fund for future benefit provision, however,
then the purpose of maintaining them as a distinct form of direct
taxation comes into question. As a form of taxation upon employees
they have been considerably more regressive than income tax with
liability starting at much lower rates of earnings and reaching
a ceiling well below the higher tax band level for income tax.
Crossing the lower limit also subjected all income to contributions;
it acted as step, rather than a threshold as in
income tax, and was consequently a severe disincentive to self-improvement
for the very low paid. And, because liability for NI contributions
is calculated weekly, then those in fluctuating and seasonal employment
are required to make contributions whenever they exceed lower
limit, whilst their liability for income tax only arises when
total annual earnings are above the (higher) income tax level.
For the low paid, in particular, therefore NI contributions can
be a relatively punitive form of direct taxation, which may also
provide little in the way of benefit protection in return. These
issues have been addressed to some extent by recent reforms introduced
in the 1998 and 1999 budgets, with the intention of aligning NI
contributions with Income Tax liability. And this is being complemented
at an administrative level with the transfer of the Contributions
Agency to the Inland Revenue. Such changes, however, will operate
to remove the distinctive character of NI contributions and may
therefore have the effect of further undermining the policy and
popular logic of the contribution base.
5.17 Employers' contributions to the insurance
scheme are an important source of revenue; but they are expensive
to collect, especially for small employers, who have to create
and retain separate NI records for the whole of the workforce.
It is possible that these costs may act as a disincentive to employers
taking on new workers in marginal cases. It is also quite likely
they the act as an inducement to keep low paid and part time workers
below the NI contribution levels, indirectly suppressing their
overall earnings.
Administrative Costs
5.18 If the administration costs of NI contributions
are significant for the employers who pay them, they are also
a major undertaking for the insurance administrators who collect
them. The work is done by the Contributions Agency and is to be
transferred to the Inland Revenue. Computer based data storage
has made this administrative task easier to manage; but it is
still a mammoth exercise providing records of contributions, benefits
and liabilities for virtually the whole of the population over
working age, When these are merged with taxation records within
the Inland Revenue, questions may well be asked about the purpose
and value of retaining a separate database for a largely fictitious
NI fund in order to determine entitlement to benefit for a declining
number of claimants.
5.19 Furthermore this duplication is repeated
at the level of benefit delivery, with NI entitlement having to
be calculated and administered separately from means-tested benefits.
Where claimants are in practice receiving their total benefit
income from these two (or more) sources, the administrative distinctions
are more likely to be a source of confusion than confirmation
of entitlement criteria—where, that is, this distinction
is noticed at all. From the claimants' point of view in particular,
it is at the least doubtful whether the less than comprehensive
benefit coverage now provided by the insurance scheme fully justifies
the continued separate existence of the large scale administrative
structure which accompanies it.
6. THE FUTURE
OF SOCIAL
INSURANCE
6.1 Social security provision has been developed
and maintained within social security provision largely because
of the popular support which it has been assumed to draw for the
principle of benefits as rights earned by contribution and the
broader legitimacy which this provides for the social security
system as a whole. Especially when viewed in the wider European
context, this has ensured that social insurance has been able
to retain a large measure of political support. Despite the practical
weaknesses therefore support for social insurance should not be
under-estimated, nor should the implicit appeal to social integration
on which this is based. The attraction of social insurance is
this idea of collective protection. Private insurance markets
could not provide individuals with the kind of all-embracing protection
in times of need which a social insurance scheme can, as recent
research at the LSE has confirmed—to say nothing of the
economies of scale which one national scheme enjoys.
6.2 Linked to the value of collective protection
is the horizontal redistribution which this implies. Social insurance
helps us, collectively, to spread the costs and benefits of living
across our life course; and in our different ways as children,
workers, parents or pensioners, we all expect to pay and to benefit
at different times. Horizontal redistribution appeals to a "one-nation"
concept of social solidarity and to the notion of a quasi-contractual
link between rights and responsibilities in social security. This
contrasts with the stigma associated with assistance benefits,
in which vertical redistribution means that some pay in order
for others to benefit. Vertical redistribution and means-testing
involve a potentially much more divisive approach to social security
in which those who pay may resent supporting those who receive—and
those who receive may feel alienated and excluded from those who
pay.
6.3 Over the last two decades or more, however,
means-tested benefits have been assuming a greater and greater
role within British social security provision, as both a substitute
for, and a supplement to, NI protection. This trend was accelerated
by the Conservative governments of the 1980s and 1990s; and it
has been continued to some extent by New Labour, in particular
in the planned Working Families Tax Credit and the threats to
means-test Child Benefit. More generally New Labour has adopted
the lexicon of "targeting" and spokespersons talk openly
about the need to concentrate benefits on those who need them
most. If this is taken to mean moves to further the replacement
of NI with income-related benefits, then there is a serious danger
that the advantages of social insurance as the key integrating
principle of social security will be lost and that means-tests
will become the defining feature of social protection.
6.4 As discussed above the advantages of
social insurance protection are not shared by means-tested provision—indeed
in many ways the great strength of the insurance approach is that
it avoids the pitfalls of means-testing, as Beveridge openly argued
over fifty years ago. Moves towards greater use of means-tested
benefits would entrench the impact of the poverty trap and savings
trap, would extend the complexity of benefit delivery and reduce
levels of take-up, and would accentuate the divisions within society
between those who pay for social security and those who receive
it. As the old adage goes—benefits for the poor can quickly
become poor benefits.
6.5 Recognising the undesirability of means-tested
support and aware of the weaknesses of social insurance outlined
above, some commentators have argued that both should be abandoned
in favour of the payment of a "basic income" to all
members of society on a unconditional basis, with all other income
and savings acting as a top-up to this. This is not the place
to discuss pros and cons of the basic income idea. However, it
is important to note that much turns upon whether such an income
is intended to provide sufficient for subsistence for all citizens
(in effect equivalent to at least Income Support level) or merely
a contribution to this. If the former, then the cost (or redistributive
effect) of the scheme would be enormous; if the latter, then existing
benefit provision would still have to be maintained for some.
Therefore basic income is an idea whose time is yet (if ever)
to come.
6.6 The pitfalls and problems and means-testing
and the impossibility of basic incomes have thus frequently led
commentators back to the social insurance principle as the core
value of social security protection. The practical advantages
of contingency based entitlement and the ideological integration
provided by the collective contractual nature of the contribution
base make social insurance still the "natural" form
of public protection in welfare capitalist economy. Labour markets
have changed, and so have family structures; but both are still
be core social relations within British society. Perhaps the key
question for social insurance therefore is not whether (or why)
it has not been able to adapt to respond to changing social circumstances,
but rather how it could be adapted to do so in the future. This
is a question which, thus far, has not been directly addressed
by policy-makers in Britain.
7. MODERNISING
SOCIAL INSURANCE
7.1 Modernising social insurance would inevitably
require a strategy to reform which would build on the strengths
of the insurance principle and seek to overcome or marginalise
its weaknesses. In essence this would involve recognising the
changed social circumstances in which NI protection now operates
and seeking to adapt the contribution conditions and entitlement
criteria in order to reflect this.
Building on Strengths
7.2 The strengths of social insurance are
the contingency base for entitlement and its link to labour market
participation, the individual basis of the contribution contract,
and the notions of horizontal redistribution and income protection.
These could be strengthened in a number of ways:
7.3 Entitlement could continue to be linked,
as appropriate, to absence from the labour market and willingness
to seek appropriate employment and training opportunities. Such
entitlement would need to take account of part-time and seasonal
work—probably through the use of "part-time pay/part-time
benefit" provision and fast-track re-claiming after short
spells of employment.
7.4 Entitlement could continue to be based
on individual rights, linked to individual taxation and direct
support for family costs through Child Benefit support. Any additional
costs resulting from increased benefit entitlement could justifiably
be met by increasing the contribution rates for those in employment.
7.5 Horizontal redistribution could be extended
by ensuring that all life cycle events leading to labour market
absence were covered by insurance. Income protection could be
enhanced by (returning to) the notion of earnings-related benefit
payments—at least for short periods of labour market absence.
Eliminating Weaknesses
7.6 The weaknesses within social insurance
protection are the regressive nature of the contribution base,
the effect of strict contribution conditions in excluding some
from protection, the failure of insurance benefits to meet the
full costs of family support, and the archaic nature of the contribution
system. These could be challenged in a number of ways.
7.7 The regressive nature of the contribution
base could be removed by aligning NI contribution thresholds with
Income Tax and moving both onto an annual accounting base. Moves
towards this goal have already been made by the New Labour government.
However, if the upper earnings limit were removed completely,
significant additional resources could be generated to support
extensions to the conditions for entitlement outlined below.
7.8 Relaxing contribution conditions would
bring more people into entitlement for NI protection. This could
apply both to short term benefits (notably the JSA) and the long
term basic pension. Permitting the substitution of paid contributions
with credits could bring marginal workers, those in education
or working abroad, the youth and long term unemployed into protection.
The extension of the home responsibilities exemption could bring
in those excluded from the labour market by caring responsibilities.
The existing long term unemployed could also be protected by removing
the six months limit to contributory JSA.
7.9 The failure of insurance benefits to
meet the full costs of (especially large) families is in part
a product of inadequate support for child care costs elsewhere
in the social security system, and of the high housing costs faced
by such families. Changes here would require changes in other
aspects of public and social policy. However, extending individual
entitlement to NI protection and increasing levels of Child Benefit
would certainly help here; and any such move would help to undermine
the disincentive to undertake paid employment currently experienced
by the partners of unemployed claimants of means-tested benefits.
7.10 The current contribution conditions
are understood by very few claimants - and possibly few politicians
and policy-makers too. The legitimacy which they lend to the use
of social insurance to provide income support is based more upon
the principles of the contractual model of contribution and earnings
dependency than any detailed knowledge of individual criteria
for entitlement. Given this the alignment of NI contribution thresholds
with income taxation and the move to make the NI fund more like
hypothecated taxation for social security makes practical sense.
It would also therefore be rational to relax contribution conditions
and link entitlement more closely with membership of the labour
market, job availability, or justified absence for care duties,
education or other reasons. Such reforms could also encompass
a continuation, or extension, of earnings-related benefit payment
in certain circumstances—employing taxable earnings, rather
than NI contributions made, as the base for determining levels
of entitlement.
8. CONCLUSION
8.1 The contribution principle and the notion
of social insurance have been at the heart of the British social
security system throughout most of the twentieth century, and
especially since the Beveridge reforms of the 1940s. They also
dominate much of the social security protection provided by our
neighbours in continental Europe. However, the comprehensive nature
of NI protection in Britain has been undermined in recent years
by structural weaknesses in the contribution base and by its inability
to adapt to changing social and economic circumstance, compounded
by a massive increase in the use of means-tested benefits to meet
a range of social needs. Nevertheless NI benefits continue to
comprise the majority of social security expenditure; and means-tested
benefits import a number of problems and disincentives into the
social security system. If the decline in NI entitlement and the
expansion of means-testing were reversed as a result of the adoption
of a modernised approach to social insurance protection, then
social security could begin again to fulfil the integrating role
in British society that Beveridge envisaged for it over fifty
years ago.
Pete Alcock
Professor of Social Policy and Administration, University
of Birmingham
6 May 1999
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