Select Committee on Social Security Minutes of Evidence

Examination of witnesses (Questions 36 - 39)




  36. Good morning, ladies and gentlemen. May I declare the public session of evidence of the Committee's inquiry into the Contributory Principle open? We are delighted to welcome our friends, familiar faces, from the Trades Union Congress. Pat Hawkes is the General Council member. I think, Ms Hawkes, you would like to say a few words in opening and perhaps introduce Mr Exell and Ms Segars, who we know well but for the record it would be helpful just to set out the various areas of responsibility. You are very welcome.
  (Ms Hawkes) Thank you, Chair and that is very nice, to invite us here. My colleagues, as you have said—I am Pat Hawkes, NUT, and I am on the General Council. Richard Exell is our senior policy officer at Congress House responsible for Welfare to Work and social security and Joanne Segars is our senior policy officer responsible for pensions. With your permission, Chair, I would like to make a very brief statement summarising our policy on this issue.

  37. Thank you.
  (Ms Hawkes) The TUC is a strong supporter of National Insurance. There are three important reasons for our support. National Insurance is a benefit system which puts the emphasis on paid work. Work provides us with status and gives us a role in society. Our income is more likely to be regarded as a right when it has been earned through work. For Unions it also has the advantage that, unlike benefit, we can negotiate wages. A government concerned for social justice will seek to promote security and decent income levels for all, but work is the foundation of this. Welfare is a supplement -Plan B, if you like—when paid work falls through. Secondly, over the past two decades labour market policies have increased in equality whilst social security policy has promoted means testing at the expense of national insurance. The combined results of these policies have been more and more people relying on means tested benefits and thus facing the poverty trap: high marginal effective rates of taxation. The poverty trap then makes it more difficult for people caught in it to get jobs. The erosion of national insurance is thus at the heart of the problem which now has to be addressed by expensive Welfare to Work programmes. Thirdly, Unions have no problem with a major role for savings and private insurance. The occupational pensions which have lifted millions of pensioners out of poverty were mostly negotiated by the Unions. Unions also negotiate for sickness and maternity pay among other benefits and many Unions are also able to offer their members attractive terms for different types of personal insurance. Despite our successes, however, we have always believed that private insurance is a supplement to social insurance, not a replacement. National Insurance is a compulsory scheme which means that an individual's contributions are not related to the risk she will make in making a claim. Private insurers on the other hand must relate premiums to risk and this normally raises the cost for those least able to afford it. While Unions have been and continue to be the strongest supporters of National Insurance we recognise that it needs reform. In particular Unions have become increasingly concerned about the impact of the Lower Earnings Limit for National Insurance contributions. Over the past three years the TUC have developed its previously sketchy policy on this issue. We are particularly proud of the reports we commissioned from Emma MacLennan—Below the Limit—which looked at statutory sick pay and statutory maternity pay and Low Paid and Excluded which looked at contributory benefits. Our reports revealed that the LEL excludes 2 million workers from benefit entitlement, 95 percent of whom are part time workers and four out of five are women. We devoted a great deal of effort to costing options for addressing this issue. Our efforts have, I am glad to say, been overtaken by events to some extent. The Chancellor's announcement in the Budget of a zero rate of contribution for low paid workers was very welcome indeed. This measure will not only prevent an increase in the number of excluded workers when the alignment of the LEL with the income tax thresholds take place, it also provides the mechanism for a gradual extension of National Insurance rights to other part time workers. So to conclude our opening remarks, Trades Unions strongly support the modernisation of National Insurance. We do this because we believe in it. Thank you.

  38. Thank you very much. That is an excellent scene-setting opening statement and we are grateful for that and can I say in particular because we are used to getting high quality submissions from the TUC, but the written submission that Mr Exell has sent us is particularly valuable and very thought provoking and we are very grateful for that. It really is a very substantial piece of work indeed and it will help us enormously. I wonder if I can just ask a couple of questions just to set it in context from our point of view? There are different ways of looking at what is meant by the contributory principle and we even had Dr Bruce Stafford, who is doing a bit of DSS work, which you may have seen, in which he said, and I quote, because the sentence is important. He was suggesting that: "Growth in private insurance to cover unemployment, sickness and pension represents an expansion of the contributory principle." I think that that idea of the contributory principle is probably quite a way distant from your own. Perhaps, Mr Exell, you could maybe comment on that and try and crystallise what your own definitions are and maybe say a word about whether you think that that is a reasonable and sustainable statement for Dr Stafford to make?
  (Mr Exell) It is probably more of an extension of the premium principle rather than the contributory principle. One of the characteristic features of the contributory principle is that it defines who must be a member of the scheme and who is not able to be a member of the scheme. If you look at social insurance schemes across the world, one of the core functions of the funding mechanism is to define who is obliged to be a member and who is forbidden to be a member and National Insurance contributions do that. You cannot join the scheme if you have earnings below the Lower Earnings Limit. You have limited rights if you are a self-employed worker. On the other hand, if you are an employee earning above the LEL you must be a member. Now that is very different from private and occupational insurance where there is far more choice. So the development of private insurance requiring premiums, that is people making a contribution to their benefit provision, is not the same as the contributory principle in our benefits system.

  39. Thank you. I wonder if I could put another construct to you and ask you to comment on it as well and it comes this time from an article the Secretary of State wrote earlier this year in The Guardian. He said, and again I quote: "Today the important difference in social security systems is not whether they are insurance based or means tested, but whether or not they provide enough help to get people back to work and improve their lives." So the Secretary of State seemed to be uninterested, agnostic about the kind of system which produces the support as long as the support produces a good outcome. Do you have a comment on that perspective on the contributory principle?
  (Mr Exell) One of the weaknesses of National Insurance at the moment, especially for a Government that is concerned about promoting transitions from welfare to work and which has adopted the basic principle of work for those who can, security for those who cannot, is that it is not an active system. It is based on a model that saw the welfare state as having largely a reactive role to play, covering people for gaps in their earning power. It has become more and more apparent over a long period, perhaps 20 or 30 years, that welfare policy needs to have an active element as well as the passive element and that is possibly the most attractive area for reform of National Insurance. At the TUC we see it as one of our main tasks to persuade decision-makers such as yourselves that National Insurance can play such a role if it is modernised. But it does need modernising. It is not designed to help people back into work at the moment and National Insurance can be extended. For instance, in Scandinavia the social insurance system pays for preventive health and safety measures and rehabilitation, and that would be a more active role for National Insurance in this country. Similarly, we could see National Insurance provision for parental leave so that people could combine work and family. Again that would be a way of providing a benefit, but in a way that is designed to promote activity rather than inactivity. So I can see why the Secretary of State would not regard National Insurance as it exists as part of his toolbox for promoting Welfare to Work, but that does not mean it is not capable of playing that role.

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