How to balance fairness and effectiveness in Unemployment Insurance

A summary of this report by Craig Berry is below. Click here 728 KB to access the full version of the report, and here for an accessible Google doc version.

You can also download a summary briefing here 242 KB , focused on the impact on disabled people (and an accessible version here).

SUMMARY

The aim of recognising previous labour market contributions in benefit eligibility and payment levels, in order to enhance the political legitimacy of the benefits system, is understandable. And we agree that the role of contributory benefits in partially replacing lost income when someone becomes unemployed can help some people return to sustainable jobs more swiftly.

The problem, however, is that disabled people, and people with long-term health problems, will see their contributory benefit entitlements scaled back if current proposals go ahead. The proposed Unemployment Insurance system could actually reduce expenditure on contributory unemployment benefits by at least £2 billion per year, by ending the long-duration new style Employment and Support Allowance awards. Payment levels for unemployed people in general are being increased, resulting in higher spending. But this is more than offset by withdrawing entitlements for contributory benefits typically received by people leaving employment due to ill-health.

At a time when income-related health and disability benefits are being cut, and the future of Personal Independence Payment remains under consideration, this is difficult to justify. Many of the people who will be affected are already experiencing hardship. We help tens of thousands of people with new style Employment and Support Allowance each year: more than 1 in 10 also need charitable support such as food bank vouchers. Our debt clients receiving Employment and Support Allowance are more likely to be in a negative budget, especially if they are also eligible for Universal Credit. 

If the government proceeds with largely removing health considerations from the UK’s contributory unemployment benefits system, and limits even those with limited capability for work-related activity to receiving UI for only 6 or 12 months, then at the very least other planned and prospective cuts to health- and disability-related benefits must be reconsidered. 

It would be unwise to withdraw support from the benefits system before significant progress has been made on increasing employment among disabled people and/or reducing the proportion of people experiencing ill-health. More than 80% of our advisers say that people currently eligible for the highest rate of new style Employment and Support Allowance would be unlikely to return to work if/when they lose contributory benefits. And they report that becoming dependent on Universal Credit alone would result in significant financial hardship for many – with negative health impacts and higher demand for public services.

Recipients of new style Employment and Support Allowance are typically older people who become unwell before they reach state pension age and are unlikely to ever return to employment. The view of our advisers is that people prospectively eligible for an indefinite new style Employment Support Allowance award should be able to access Unemployment Insurance Awards with a longer duration. Around half say that indefinite awards should continue. One option available to the government is award duration to be based on the length of a claimant’s National Insurance contributions record before becoming unemployed – whether this applies to all claimants, or only those unemployed due to ill-health. Our understanding is that longer awards for a defined cohort would still be possible while recognising significant savings. 

It will also be important to introduce transitional protection for current and prospective new style Employment and Support Allowance claimants. People already receiving health-related contributory unemployment benefits – and those who would become eligible in the future – have already accrued entitlements in the current system. This is especially the case for those claimants nearing retirement age.

The government also needs to decide how to treat earnings in the new Unemployment Insurance system, and how the new benefit should interact with Universal Credit. If the approach currently in use for the main contributory unemployment benefit (new style Jobseekers’ Allowance) is replicated, then typical low-income benefit claimants would not benefit from this policy to any meaningful extent. Any earnings they have would see their Unemployment Insurance award reduced and, more importantly, any Unemployment Insurance would simply see them losing Universal Credit entitlement by an equivalent amount.

We are therefore recommending that:

• The government should thoroughly review the available evidence on the impact of income-replacement mechanisms on well-being and employment, and engage the public in a broader consultation about the role and design of contributory unemployment benefits.

• The government should consult on benefit design issues around how Unemployment Insurance treats earnings and interacts with Universal Credit. As part of this consultation, it is important that the government outlines what the impact would be on different groups of claimants in each possible scenario.

• The government should use Unemployment Insurance to develop a new approach to Jobcentre Plus relationships with claimants, replacing work coaches with case workers and offering tailored support. It should review all available evidence to determine whether ongoing Unemployment Insurance eligibility should be subject to stringent conditions being met, and whether Unemployment Insurance claimants who are disabled or in ill-health should be exempt from conditionality altogether.

• The government should consult on the likely impact of ending indefinite new style Employment Support Allowance support group awards on disabled people. Options for mitigating this impact should include longer-duration awards for some or all claimants – for example, duration could be based on age, or the length of a claimant’s National Insurance contributions record. The government should also reconsider other health- and disability-related cuts that will exacerbate the negative impacts of contributory unemployment benefit reform.

• The government should put transitional protection in place to minimise the negative impact of replacing nsESA with UI for disabled people. It should consult on the options available, outlining what the impact would be on different groups of current and future claimants of each possible scenario.