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Social Security

The economic impact of the coronavirus crisis will be long lasting. Borrowing and investing now to get the economy re-started, and people into work, will be vital to preventing a prolonged slump and the even larger economic and social costs that come with sharp rises in poverty and long-term unemployment.

Background

Poverty has been rising in Britain for over a decade. Under the austerity policies of the Conservative government from 2010, billions of pounds has been cut from social security budgets, driving millions more people into poverty.

The benefit freeze meant real terms cuts in incomes – while eligibility for support was removed from many people. Support for low paid workers was also reduced through cuts to tax credits, Universal Credit and housing benefit.

Alongside these cuts, a more punitive conditionality and sanctions regime has been introduced. One DWP worker described the change as going from a system that helped people to a system designed to trip people up.

The results have been clear: with 14 million people in Britain now officially classified as living in poverty. Over 4 million children are growing up in poverty, pensioner poverty is rising again, and over 3 in 10 disabled people live in poverty compared to only 2 in 10 non-disabled people.

In-work poverty is at record high levels, and most of the children in poverty are in a household where at least one parent works. Of the 14.3 million people in poverty, 9 million live in households where at least one person works.

The United Nations has been damning about the impact of austerity saying that the UK’s social safety net “has been deliberately removed and replaced with a harsh and uncaring ethos”, while a separate UN report found “systematic violations” of the rights of people with disabilities.

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UK benefits provided some of the lowest incomes in western Europe – with unemployment benefit (JSA) and the main disabled people benefit (ESA) providing just £74 per week pre-crisis to live on. Under-25s claiming JSA were asked to live on just £58 per week.

Even before austerity, the UK had one of the least generous benefit systems in Europe – and one of the least generous basic state pensions in Europe.

Alongside this, the cuts to the DWP and bodged reforms meant the system was unable to cope with the rise in demand for support that followed the lockdown.

DWP staffing levels have been cut by more than 50,000 since 2011. Meanwhile the department’s flagship policy, Universal Credit, was originally due to be fully rolled out by 2018. Following a litany of failures, delays and evidence of real harm, that date is now 2026 (though of course subject to further delay). Universal Credit has probably been the most shambolic piece of public policy implementation in living memory.

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In recent years the number of workers who are self-employed has increased dramatically from 3.3 million in 2001 to around 5 million workers at the start of 2020. Many are not eligible the social security protections that are available to employed workers, and many are falsely self-employed – working regularly for the same employer, while the employer avoids having to pay pension or NI contributions or having any duties to provide benefits like sick pay and pensions.

Social Security during the coronavirus crisis

The coronavirus crisis brought a sudden awakening that the UK’s benefits did not provide enough to live on. The Health Secretary, Matt Hancock confessed on live television that he would not be able to live on statutory sick pay, paid at just £94 per week.

This also served to highlight the paucity of UK benefits, with the TUC highlighting that statutory sick pay in countries like Germany, Austria, Sweden and Netherlands is more than double the rate in the UK – while entitlement in Spain was around 30% higher.

If £94 per week was not enough to live on, then neither could be the £74 per week for JSA (or just £58 for people aged under 25). For people looking after disabled friends or relatives full-time – those most vulnerable to the coronavirus – they were entitled to just £66 per week in Carer’s Allowance.

For comparison, unemployment benefit in Ireland is around £183 per week, compared with £74 on JSA in the UK.

When the coronavirus crisis hit it was clear that the UK’s shredded social safety net would be inadequate. The Government suspended the sanctions regime and some conditionality, which had been heavily criticised, and now had become untenable due to social distancing. The Government also acted to increase in basic element of UC by £20 per week, but that still leaves UC paying just 17% of average weekly pay. By comparison, in 1984 unemployment benefit was worth 25% of average weekly pay. The temporary uplift of £20 in UC is due to end in April 2021.

The £20 increase in UC excluded around 2 million ill or disabled people claiming Employment Support Allowance, as well as others on JSA or income support.

In the first three weeks of the crisis, one million people applied for Universal Credit. It is still too early to know how many people will be made unemployed, but many large companies have announced major redundancies, while other businesses (large and small) have gone into administration.

The Government recognised that the social security system was inadequate to meet the demands placed on it by the crisis and created two entirely new systems within a matter of weeks – a furlough scheme for employees (the Job Retention Scheme) and the self-employed income support scheme (SEISS). Both provided greater support than the social security system in place before the coronavirus.

At its peak, the furlough scheme covered 80% of the wages of 9.4 million workers. From 1 August 2020, the furlough scheme was gradually wound down before ending entirely on 31 October, even though many businesses are still unable to fully resume business due to social distancing restrictions. Speaking in early August, the Governor of the Bank of England backed the ending of the furlough scheme, saying: “we have to let structural change in the economy take place”. The concern for many workers is that the Government has not outlined any plan for structural change – and it appears that unmitigated rising unemployment will be the structural change.

To cope with the increased demand, 10,000 DWP staff were redeployed to deal with the influx that left claimants facing online queues of tens of thousands of people trying to prove their identity.

As the second wave hit, in September the Government announced a Job Support Scheme. After being pilloried by individual unions, business groups, economists and think-tanks, the Government amended and improved this substantially in October. For those areas entering Tier 3 lockdown, the Government announced a furlough scheme that would pay 67% of wages (below the 80% paid under national lockdown in Spring and Summer).

If any good comes from this terrible situation, it must be the end of state-sanctioned poverty in our benefits system so that it can be of an adequate level to truly deserve to be called social security again.

A decade earlier, at a time of rising unemployment, the Conservative government of David Cameron, George Osborne and Iain Duncan Smith divided working people and those unable to work – labelling the latter as ‘scroungers’, ‘skivers’ and ‘shirkers’. Already we are seeing signs of this divide-and-rule strategy with government sources briefing The Sun that workers were “addicted” to the furlough scheme (even though the decision to furlough is taken by employers, not workers).

Rebuilding social security

Social security should provide a liveable income for all those unable to work or whose pay from work does not provide a liveable income. The current system fails

At the end of this crisis, many more workers are likely to be unemployed, working on reduced hours or in the furlough scheme being paid only 80% of their wages.

Social security acts as what economists call an ‘automatic stabiliser’, acting as a buffer that not only protects the individual but the wider economy – preventing economic demand from slumping.

It should be the aim of any government to give all our children the best possible start in life, but child poverty has been rising in recent years due to deliberate policy choices – including limiting benefits to the first two children, and freezing and then capping child benefit.

For a serious policy to tackle child poverty, child benefit must be increased substantially, the benefit cap scrapped, and the two child limit removed. But child poverty cannot be tackled without addressing adult poverty.

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The low rates of benefits in Britain must end and we need new programmes to ensure that people are found fulfilling work or training.

Many people who are experiencing the benefits system for the first time, perhaps after years of paying taxes, will find that they are not eligible. For anyone with savings of more than £16,000 UC is off-limits. For anyone with savings of more than £6,000 (the lower savings limit), eligibility to UC is reduced.

This excludes many of those close retirement – who have contributed most through their taxes – who are planning to use their hard-earned savings to supplement retirement income. It also excludes many younger people who have been saving for a deposit to buy their first home. Most fundamentally though, it breaks the reciprocal solidarity on which social security is based: each of us contributes so that each of us is insured against periods of unemployment or illness.

Another area where this solidarity breaks down is for self-employed workers – who account for nearly 1 in 6 workers. A rebuilt social security system must ensure protection for all workers in the UK economy.

Rebuilding a social security system that does what it says and provides security, must start with a Minimum Income Guarantee at its base – providing the minimum level that anyone is expected to live on. The New Economics Foundation has called for that minimum to be set in line with the calculation by the Joseph Rowntree Foundation of a minimum income standard (which has now risen to £227 per week).

The TUC has called for the basic level of Universal Credit (which is paid to households rather than individuals) to be increased to £260 a week. Others have advocated a Liveable Income Guarantee equivalent to the real living wage (£9.30 per hour, or £372 per week) accounting for housing costs too.

These would be dramatic increases from the current levels of UK social security, but they would be not wildly dissimilar from levels of social security paid in Ireland, France or Germany.

The other side of the social security system is to support people (who are able to) to return to work. That is why many have advocated a Job Guarantee Scheme that provides the guarantee of paid work at least at the real living wage, or the union negotiated rate, or to provide free education or skills training while on benefits.

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Making these offers an integral part of the system should be part of scrapping entirely the punitive culture of sanctions and conditionality with a system that supports and empowers people as part of a wider co-ordinated economic and industrial strategy.

The Government should also consider establishing a Public Works Unit that straddles HM Treasury, the DWP and DfE to invest in shovel-ready construction projects so that investment can be brought forward to create jobs, skills training and apprenticeships. This could be part of a far-sighted programme of green investment to help to decarbonise the UK, as well as to improve vital infrastructure such as superfast broadband or new rail, cycling or tram networks.

The DWP should also work with the Department for Health & Social Care to seek to employ or train those who can fill the 100,000 vacancies within the NHS and the 120,000 vacancies in the care sector that existed prior to the coronavirus pandemic.

The economic impact of the coronavirus crisis will be long lasting. Borrowing and investing now to get the economy re-started, and people into work, will be vital to preventing a prolonged slump and the even larger economic and social costs that come with sharp rises in poverty and long-term unemployment.

The path to a better society and a stronger economy can only be built on the foundations of a strong safety net provided by a renewed social security system.

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