New system needs fundamental reform to make it a ‘safety net, not a tightrope’, says new think tank report
A new IPPR report finds that social security payments have reached their lowest level since 1948 compared to average earnings, after years in which the real value of benefits has lagged behind wage growth – culminating in the recent benefits freeze.
When Unemployment Benefit was first introduced in 1948 it was equivalent to 20 per cent of average weekly earnings, whereas comparable Universal Credit Standard Allowance payments have fallen to just 12.5 per cent of average earnings today.
The report finds a system at breaking point:
- Universal Credit payments are historically low with the situation made worse by debt deductions taken from the first UC payment onwards, which can be up to 40 per cent of each payment.
- The assessment system is unable to cope with constant recalculation of claimant eligibility - leading to a 17 per cent increase in underpayments and families being unable to predict how much they will receive each month.
- Sanctions are severe and applied to vulnerable groups such as disabled people, low paid workers and lone parents.
The combined effect is to keep some claimants in near constant financial insecurity despite being supposedly supported by the state’s social safety net, according to the report. Poverty is now on the rise again with 30 per cent of children and 16 per cent of pensioners below the poverty line, according to analysis of DWP figures.
Restricting social security payments to subsistence levels or below, combined with strong sanctions, has been seen by some as providing a strong incentive to work. But the IPPR report cites evidence suggesting this is a false economy as people need a degree of financial security in order to be able to make choices and provide for their family in order to secure and maintain work.
Ahead of the election, the think tank is calling on political parties to end the ‘security deficit’ by investing £8.4 billion emergency funding package into the benefit system every year over the next parliament. This reform package should fundamentally re-engineer Universal Credit with measures including:
- End the worst features – Reduce five-week wait to two weeks. Debt deduction payments should be capped at 20 per cent and not made applicable for the first three months. The severity of sanctions should be reduced and not applied to the most vulnerable groups.
- Reverse austerity measures – Reverse the impact of the benefits freeze on the Universal Credit standard allowance and the child element. The ‘benefits cap’ and ‘two child limit’ should also be scrapped. We estimate this will cost £5.6 billion annually or £3.8 billion if the benefit freeze is partially reversed.
- Allowances - Increase the Universal Credit work allowances, including introducing new work allowances for second earners and single parents who have been unfairly penalised by Universal Credit. We also recommend reducing the taper rate to 60 per cent. In total this would cost £2.5 billion.
IPPR argues that any of these recommendations would be a significant improvement on the current situation. If the full emergency funding package was introduced it would raise average incomes by 4.8 per cent for households in the bottom half of the income distribution, according to IPPR.
The report contrasts this with a proposed plan to raise the threshold for National Insurance Contributions (NICs) in line with the Personal Tax Allowance, which IPPR calculates will benefit the well off and only increase incomes for the bottom half of households by 1.2 per cent - at a considerably higher cost.
In order to learn lessons from the past 10 years of austerity, the think tank also argues the calculation of social security payments to be handed over to an independent body – the Minimum Income Commission. The calculation should be detached from politics and based on a new measure of ‘adequacy’ - the basic minimum required to live in security and dignity.
IPPR suggests a new higher minimum income could be put in place by the end of the next parliament, so that the social safety net comes closer towards what is needed to deliver a good minimum standard of living.
Clare McNeil, IPPR Associate Director and lead author of the report, said:
“Social security should offer a safety net, not a tightrope over poverty. We call on political parties to commit to reversing the impact of the benefits freeze and allowing those in-work to keep more of their earnings. We argue that we need the first ever measure of ‘adequacy’ for social security payments so that no future government can so easily hold our social security system to ransom.
“It is remarkable that in post-war Britain the support for those living in poverty was closer to average earnings than it is today. This is the very simple fact that lies behind the record levels of personal debt, rising use of food banks and increasing destitution that we see in the UK.
“While political parties are converging on the need to invest more in our public services after a decade of austerity, there is stony silence on the need to invest in our social security system and the people who have been pushed further into debt and destitution to help balance the books.”
NOTES TO EDITORS
- The IPPR paper, Social in(security): reforming the UK’s social safety net by Clare McNeil Dean Hochlaf and Harry Quilter-Pinner will be published at 0001 Monday 18 November is available for download at: http://ippr.org/research/publications/social-insecurity
- Calculating a higher minimum income - how a new standard allowance could be established by the end of the next decade by linking baseline social security payments to the Minimum Income Standard (MIS). The Standard Allowance could rise 1% per annum as a proportion of the MIS. By 2023/24 when UC is fully rolled out, this would represent an average increase in the Standard Allowance for single people over 25 of 6.4%, substantially higher than average inflation. For this group we estimate that by 2023/24, the Standard Allowance would have risen from £3,813 to £4,889.
- Graph: Comparing the distributional impact of IPPR’s welfare package with the proposed plan to raise the threshold for National Insurance Contributions in line with the Personal Tax Allowance (£12,500).
- IPPR is the UK’s pre-eminent progressive think tank. With more than 40 staff in offices in London, Manchester, Newcastle and Edinburgh, IPPR is Britain’s only national think tank with a truly national presence. www.ippr.org