What does ‘contributory welfare’ mean?


9:00 am - April 8th 2013

by Don Paskini    


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Labour has just announced what they are calling a ‘radical shift’ to welfare payments. They want ‘a return to the contributory principles of Beveridge’, where what you get out of the welfare state should be based on what you put in. This is possibly not what lefties had in mind when urging Labour to rediscover the ‘Spirit of 45’, but let’s explore further what this might mean.

Labour haven’t yet explained what ‘the contributory principle’ would mean in practice, though the IPPR think tank have previously suggested ‘National Salary Insurance’, where people who have paid taxes before becoming unemployed would be entitled to receive interest free loans from the government, which they pay back when they get a job.

The idea behind ‘the contributory principle’ where ‘you get out what you put in’ sees the welfare state as a kind of insurance system. It is intended to appeal to people who, in Labour minister Liam Byrne’s words, ‘feel like they put an awful lot more in than they get back’. It appears that by ‘contribution’, Labour means ‘pay national insurance’. In practice, this means a welfare system which provides greater financial support for men, older people and able bodied people, and less support for women, young people and disabled people (as the former are all much more likely to have paid national insurance before needing support from the welfare state).

This seems to me to be a very limited view of what it means to ‘contribute’ to society. It doesn’t recognise parents who work hard to give their children the best start in life, people who spend their time caring for others rather than in paid employment, or the person who is too sick or disabled to hold down a job (by everette devan). It is not obviously ‘fair’, for example, that a millionaire ex-banker who loses their job should be deemed to have contributed more and receive more help from the state than someone who doesn’t work because they are caring for their severely disabled children.

Even on the narrow measure of ‘contribution to government revenues’, it is hard to see why the only measure should be national insurance payments. To take just one example from one of the best parts of the modern welfare state, someone with severe mental health problems who attends a peer support group and helps others to manage their condition might end up saving the taxpayer tens of thousands in reduced social care costs through their contribution to the wellbeing of others, even if they’ve never paid a penny in national insurance.

So as Labour develops their ideas about ‘contributory welfare’, rather than being transactional and focused on one particular measure, it should recognise all the different ways in which people contribute.

Another concern about ‘the contributory principle’ as it is currently described is that it aims to answer the question ‘how can we identify who the contributors are, so as to be able to pay them more in welfare payments than the non-contributors?’ Instead, I think that ‘contributory welfare’ should be about making changes to the system so as to answer the question ‘how do we enable people to contribute more to society, and to live with dignity?’

Answering that question necessarily goes beyond the issue of welfare payments and helps to shape decisions about spending priorities across a much wider range of areas, from support for childcare, primary and secondary education, job creation and so on. Rather than dividing people into those who contribute and those who do not, it recognises that we all have the potential, with help at the right times, to contribute more and help each other. For some, that support comes from universal services such as primary and secondary education. For others, it might mean financial help when out of work, alongside advice to help get a job. For others still, it might involve prompt, targeted interventions such as reducing domestic abuse by working with perpetrators.

Rather than looking back to try to recreate an insurance system from the 1940s, I think there is a real opportunity here. The definition of what ‘contribution to society’ should mean is, to paraphrase Ed Miliband, too important to be left to politicians and people who work for think tanks. Labour could bring together people from all walks of life to discuss and come up with proposals about the different ways in which people in modern Britain contribute to society, and come up with a report what kinds of support they need in order to be able to contribute more.

And I can think of just the person to chair this kind of review).

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About the author
Don Paskini is deputy-editor of LC. He also blogs at donpaskini. He is on twitter as @donpaskini
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Reader comments


This is my main problem with the rhetoric Byrne is forming here. This strikes me as very similar to the type of Immigration “debates” we’ve got used to where who is useful and productive is defined within very narrow bands.

As you say, is a single mother who spends her time raising three kids well not contributing to society? What about the mildly disabled that decide to go in to voluntary early retirement and help in their local area…but not through government sanctioned schemes?

Contributory welfare, to me, feels like it will be an excuse to roll out the workfare idea further and faster, that if you’re unemployed you’ll be expected from much earlier on to volunteer and eventually be forced to as you are now. Depending on your level of disability expectations will be placed on you to “contribute” to your community.

This will be done under the guise of providing higher benefits to those who “contribute”, but in reality will see a simple realigning of the benefit system through benefit “freezes” that that government is currently enacting to ensure that people on benefits in the future will still be worse off than they were 5 years ago unless they do as the government tells them, in which case they’ll do about as good as 5 years ago.

I’m skeptical that this is a conversation as much as a framing exercise to try and differentiate by a minute margin against the coalition…to claim they are being fairer to the poor, while at the same time treating them pretty much the same as the Tories are.

“I’m skeptical that this is a conversation as much as a framing exercise ”

It’s yet another attempt by Liam Byrne to appease the tabloids. Labour could propose time limiting benefits to 3 months for everyone, and the tabloids would still portray them as soft on welfare. It’s a battle they can never win, and the attempt at trying to win it just alienates the activists and the 33% of the population who regularly disagree with the tabloids and comprise most of the potential pool of returning voters.

Chris Dillow has already pointed out what nonsense Labour is spouting.

The welfare state is an insurance system. We pool the risks of being unemployed, too ill to work, old, sticken with some ghastly disease that costs millions to cure.

The whole point of insurance is that *you don’t* get out of it what you put in. Indeed, you hope like hell that you never get any of your insurance premiums back.

And if you do get any of it back then the whole point is that you get many times what you put in back.

If you’re really going to have a “contributory welfare state” where people “get back what they put in”. then what you’ve got is not actually insurance at all. It’s just a savings scheme. I’ll give the government some of my money until I need it. Which is ludicrous, of course. Why not just stick it in a savings account instead?

I’m in Plymouth central library right now, and of their thirty computers, about half seem to be occupied by unemployed and unemployable people. The kind I guess the government wants to get tough with.
Presumamably they want to make it more like the USA where the ”underclass” get a lot rougher ride from the welfare system. Just go to some of the big Salvation Army hostels in cities like Plymouth and Bristol and you will see hundreds of people who don’t know how to get or keep a job. It would take more effort and discipline than they wish to or are able to produce.
There are crappy jobs out there. Kitchen porters and cleaners etc. But it’s easier not to try and fall back on welfare and charities. The Tories would like to put the squeeze on these people. They are doing it already with the JSA sanctions policy – stopping benefit for weeks and months for small infringements.

6. TorquilMacneil

Yes, but, Tim W, insurance schemes only pay out to people who have paid in, so there is something to be said for the contribution argument. The weakness in the welfare system is that many people consider there to be a large number of freeloaders, people who take out what is only paid in by others. Not saying I take that position, I tend to agree with the thrust of this op ed, that the analogy of welfare to insurance is misleading, they are not and shouldn’t be the same thing.

4

Agreed, Beveridge never for one moment believed that those who had contributed to the welfare state would get back what they put in. In 1945, the average life expectancy was 65 years, the age when it was determined that men reached pensionable age, it was thought that the treasury would end-up being awash with money as few would survive to draw their pensions for very long.

But the welfare state was never intended to support working people either, around £21billion is paid in housing benefit, a large proportion for those who work, and a further £31billion in tax-credits. Instead of the economic base supporting the welfare state we now have the welfare state supporting the economy.

It’s time to rethink the situation, either we embrace socialism or a genuine free-market, because capitalism and a welfare state has failed in so many ways.

8. Planeshift

” about half seem to be occupied by unemployed and unemployable people. The kind I guess the government wants to get tough with”

If they can use a PC chances are they are not unemployable. It’s the people who can’t use a PC you should be worried about!

Roughly 80-90% of those who sign on will find another job within 6 months (depending on wider economic conditions). It’s the other 10% we should focus on.

“you will see hundreds of people who don’t know how to get or keep a job”]

Actually learning the language of human resources and the techniques of interviews, application forms and where to look for jobs could be considered a skill in itself. If you got your first job at 16 through a mate, then get made redundant 30 years later you probably wouldn’t have a clue about how to get another job, regardless of how much you wanted it. It would not be a radical proposal that people on JSA should be offered the chance to learn interview techniques etc…..yet few are until they have been out of work for above 6 months when the depression, low confidence and so on begin to really hit. Welfare reform should really be about addressing these details, but sadly is not.

@ steveb

“It’s time to rethink the situation, either we embrace socialism or a genuine free-market, because capitalism and a welfare state has failed in so many ways”.

Maybe, but not in comparison to either socialism or a genuine free-market.

“Instead of the economic base supporting the welfare state we now have the welfare state supporting the economy”.

This is true, but is it necessarily a bad thing?

“The weakness in the welfare system is that many people consider there to be a large number of freeloaders, people who take out what is only paid in by others”

Except that isn’t a weakness of the system, it’s a weakness of people.

11. DisgustedOfTunbridgeWells

There used to be something similar, earnings related allowance I think it was called; the more you paid in, the more you got back if you needed it.

In 1980 the scheme was arbitrarily shut down, the state pocketed the money and told everyone who’d paid in to whistle. There is nothing to suggest it won’t do the same again, even now people who have paid in to NI for decades are being made to jump through all manner of hoops (and woe betide you if your ‘advisor’ hasn’t met his sanction targets) to get a small portion of that money back

Therein lies the problem – I have no contract with the state and they’re free to change the terms of our enforced ‘arrangement’ as they choose. I’m told it’s an insurance scheme but I would never pay money to a private insurer that was renowned for changing the conditions under which they’ll pay out based on the prevailing machinations of plebocracy.

Yes, but, Tim W, insurance schemes only pay out to people who have paid in,

If your house burns down the day after you take out an insurance policy to cover such an eventuality, the insurance company doesn’t say “well, you only had it for a day so it doesn’t count.” It doesn’t matter if you’ve paid one premium or a hundred, in principle you’re still covered.

12. Derek Hattons Tailor

@4 I’ll give the government some of my money until I need it. Which is ludicrous, of course. Why not just stick it in a savings account instead?

Because many of the things that the state can provide with it will be cheaper with a single provider and collective funding. Most people cannot afford private health insurance or education, or unemployment insurance, and no amount of saving would make them able to. In general, people make the most demands on public services at the beginning and end of their lives, and contribute in the middle. State provision allows the contributions of those in the productive phase to be matched to the demands of those in the unproductive phase. You do not get your own contributions back, you get someone elses, and then someone else then gets yours.

@ 11 “I would never pay money to a private insurer that was renowned for changing the conditions under which they’ll pay out based on the prevailing machinations of plebocracy.”

Strange statement given that in recent history insurance companies are renowned for going bust. And no so long ago they were renowned for worthless endowment policies and private pensions.

13. DisgustedOfTunbridgeWells

Strange statement given that in recent history insurance companies are renowned for going bust.

More ‘you didn’t understand it’ than ‘strange’ – the key word is ‘renowned’ you choose to engage in a voluntary contract with a shitheel company that’s your lookout.

And no so long ago they were renowned for worthless endowment policies and private pensions

All voluntary contracts I’m afraid (backed by laws pertaining to fraud) unlike the state taking £500 of my money in NI (plus what my employer pays) every month in return for little more than what is ostensibly a lottery ticket.

“Most people cannot afford private health insurance or education, or unemployment insurance, and no amount of saving would make them able to.”

Err, yes. That’s exactly the point I am making. It is precisely because it is insurance that we manage it socially. Precisely because some people (through bad luck, the course of life, accident, whatever) require vastly more than that individual could ever have saved, that’s why we have insurance at all.

Which is where Byrne is going wrong. We cannot therefore move to a system where everyone just gets back what they put in. Because this is not insurance. Getting back only what you put in is saving. And a savings model won’t create the insurance that we actually desire.

Welfare should cease altogether and people sink or swim by their own efforts. The old, sick and disabled should be supported by their families or charitable donation. This is what Labour should be doing. Now.

Obviously this is about pandering to right wing instincts. The jobless will have put nothing (monetary) in. The young will have put nothing (monetary) in. Immigrants will have out nothing (monetary) in. So they will get nothing while those middle aged white people who are in work will pat themselves on the back for having excluded shiftless shirkers and darkies. Another tribute to UKIP’s contribution to the political debate.

17. Derek Hattons Tailor

@ 13 But you are assuming that some insurance companies are shysters and some are not. My contention is that, like banks, they all are, therefore there is no “choice”. Capitalism long ago ceased to give anyone real choices, its just a profit making monopoly.

“All voluntary contracts I’m afraid (backed by laws pertaining to fraud).”

So what ? If the company goes bust or the “talent” that works for them take off with your money, you won’t get it back. You can at least be fairly certain that the state will still exist when you retire. It’s a false analogy anyway, if you don’t like paying NI or tax, you are free to go and live somewhere that doesn’t charge it (good luck with that).

@ 14 Confused. Insurance does not work by pooling risk, unless viewed from the insurance companies perspective, from a customer perspective risk is individually priced. In private insurance most people put in *more* than they ever get back, otherwise no insurance company would make a profit. The state is not trying to make a profit, hence it just needs gross contributions to equal gross claims.

@ Tim Worstall

I can’t help thinking that you’re being deliberately obtuse here.

You insist that ‘The welfare state is an insurance system.’ Then you characterise insurance systems as systems in which ‘you hope like hell that you never get any of your insurance premiums back. And if you do get any of it back then the whole point is that you get many times what you put in back.’

But by those criteria, the welfare state is *not* an insurance system. You certainly don’t pay National Insurance in the hope that you’ll never receive a pension, or in the expectation that you’ll never receive medical treatment on the NHS. Nor do you expect, when claiming your pension, or visiting your GP, or claiming (say) unemployment or sickness benefit for a time, to get many times what you put in back.

So either insurance systems do not (always) work in the way you say they do, or else the welfare state is not an insurance system. You can’t have it both ways.

19. Churm Rincewind

@ GO (18) – I rather think that Tim Worstall has it right. Of course we all hope that we’ll never be ill, or unemployed, or otherwise stricken in such a way as to be majorly dependent on others. But these things happen, and that’s where the welfare state provides. It’s an insurance policy, and like any insurance policy the costs are spread amongst the many, while the benefits go to those most in need.

I think Labour are probably heading in the right direction here. Most of the caveats you mention apply equally to pensions, but we’ve found ways around the problems – e.g. HRP/National Insurance Credits to ensure entitlement for parents and carers.

And it’s the parallel with pensions that is so telling. There is *zero* public appetite for cutting pensions, because the perception is that pensioners are overwhelmingly people who have paid in or otherwise ‘contributed’ (e.g. by raising a family) all their lives and are only claiming what they’re entitled to. That’s equally true of most people claiming out-of-work benefits, of course, but the perception is very different.

It’s not unreasonable to think that what has worked in the case of pensions might work in the case of other benefits – i.e. that establishing a link between contribution and entitlement might foster a perception that people claiming welfare payments are, overwhelmingly, only getting what’s rightfully theirs.

Indeed, there *was* a contributory element to out-of-work benefits before Thatcher got rid of it – and there was much wider support for generous welfare benefits pre-Thatcher, back when we recognised that unemployed people are generally (gasp!) ordinary working people who have lost their jobs rather than an alien breed of ‘scroungers’.

To me, this all fits into a wider debate about what the welfare state is supposed to be about. The Tories are fond of telling us, as if this is obvious, that the welfare state was always intended simply to provide a social safety net, that entitlement should be based on need, and that it’s a wasteful violation of the welfare state’s founding principles to spend money on people who don’t need it (e.g. paying Child Benefit to higher income families). This was the logic behind getting rid of the Earnings Related Supplement to unemployment benefit in 1982, and it’s something that a surprising number of avowed lefties seem to buy into. But of course it’s utterly, utterly wrong. The welfare state was always about providing *everyone* – rich or poor, needy or not – with equal access to education, healthcare, a state pension, decent housing, support with the cost of raising children, etc. It’s when the principle of universality is undermined and access to elements of the welfare state is restricted according to need – as in the case of social housing or, more recently, child benefit – that those elements start to wither away, with dire consequences for those most in need. So we shouldn’t let ourselves get too worked up over whether a contributory element in unemployment benefit will mean payments don’t strictly reflect the neediness of the person receiving them.

21. Planeshift

“So we shouldn’t let ourselves get too worked up over whether a contributory element in unemployment benefit will mean payments”

Well there still remains in theory a difference – contributury JSA and income related JSA depending on your NICs. But in practice this is more a bureacratic thing than something which has an effect on income.

I think this is one of those issues where the devil will be in the detail. Liam Byrne’s track record does not suggest we should be enthusiastic about this thought.

@ Churm Rincewind:

“It’s an insurance policy, and like any insurance policy the costs are spread amongst the many, while the benefits go to those most in need.”

Sorry, but this is flatly false. The benefits go to everyone. It would be unusual *not* to receive, over your lifetime, several hundred thousand pounds – in cash and in kind – from the welfare state, which for most people is all, most of or more than they ever pay in tax.

In back-of-a-fag-packet terms: a median lifetime income might be somewhere around the £1,000,000 mark (e.g. 40 years of earning £21,000 plus 20 years of claiming £8,000 in state pension and related benefits). The personal tax burden on most people is around 33%. So a median lifetime contribution to the tax system might be around £330,000.

Now add up everything the welfare state provides to that median earner over his lifetime. 13 years of free education = c. £100,000. 20 years of pension and related benefits = c. £160,000. 18 years of child benefit = c. £20,000.

NHS spending is c. £2,000 per capita per year, so an average of £160,000 over an 80-year lifetime; but let’s assume the spend on most people without unusually serious and long-term medical problems is only half that, £80,000.

That already brings us over the break-even point: £330,000 in taxes, £340,000 in schooling, healthcare and benefits/pension. And note that this ‘median earner’ of ours is very fortunate in many ways: we’ve assumed that he never needs state-funded social care, that his parents are sufficiently well-off that they never claim tax credits for him as a child, that he never needs to claim unemployment or sickness benefits, that he never needs subsidised housing, etc. What’s more, we’ve completely ignored the fact that his taxes go towards many things that are not part of the welfare state: defence, policing, infrastructure, bin collections, etc.

So the idea that ‘the benefits go to those most in need’ reflects an incredibly narrow view of the welfare state as consisting of a safety net of benefits and services provided to a relatively small number of unusually ‘needy’ people (e.g. the disabled, the unemployed). It absolutely is not.

23. Churm Rincewind

@GO (22): Broadly speaking I agree with your position. Our difference lies in what we mean by the welfare state. You would include state education, I wouldn’t – it predates the modern notion of the welfare state, just like the police force, street lighting, etc, etc.

Though happy to debate further, this is a big topic and an old post…


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