UK: Social partners’ involvement in unemployment benefit regimes

  • Observatory: EurWORK
  • Topic:
  • Social protection,
  • Published on: 20 december 2012



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United Kingdom
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In the UK the social security system, including the provision of unemployment benefit, has been state-driven since the 1940s. Even in relation to recent far reaching reforms there were no formal mechanisms for the involvement of the social partners. They, along with a large number of other interested parties, have had an input into legislative reforms through the general consultation procedures which accompany any government proposals for change. This lack of involvement remains the key feature for the UK.

1. QUESTIONNAIRE

1.1. Recent changes/transformations of the UB system

1.1.1. In the last 10 years, has the country’s UB regime been modified? Have new forms of interventions been introduced?

  • Regarding the UI:

This remains unaffected by the introduction of Universal Credit (UC), although how this will work in practice alongside UC remains to be seen.

  • UA and c) SA

UC is an integrated means-tested benefit for people under pension age who are not working or are in low-paid work. It will replace income support (IS), income-based jobseeker’s allowance (JSA), income-related employment and support allowance (ESA), housing benefit (HB), child tax credit (CTC) and working tax credit (WTC).

1.1.2. For each of these changes/innovations indicate:

  • date of introduction:

Although legislation was passed in March 2012, the new provisions will only be phased in from October 2013. The government intends to move 12 million claimants on to the new benefits between 2013 and 2017 in three stages:

  • By 2014 over 1 million people will be claiming UC, including approximately 500,000 new entrants and 500,000 existing claimants;
  • From April 2014, 3.5 million existing claimants and their partners and dependents will be transferred onto UC (mostly those claiming Working Tax Credits);
  • From the end of 2015 until the end of 2017 claimants of Housing Benefit will be transferred.
  • who took the initiative (government, unions, employers’ associations, other organisations):

The Coalition Government, which came to power in May 2010, has taken the initiative on welfare reform. In a speech to the Conservative Party Conference in October 2011, Ian Duncan Smith, the Secretary of State for Work and Pensions argued that restoring the economy must go hand in hand with restoring society. “In essence, what we are engaged in is more than benefit change and more than just welfare reform. It is social reform, leading to social recovery”.

  • the content of the change / of the new programme:

UC will be calculated on a household basis and will consist of basic personal payments for single adults and couples (with lower rates for claimants under 25), plus additional amounts for disability, caring responsibilities, housing costs and children. UC will have a single withdrawal or ‘taper’ rate of 65%, which will apply to household income and net earnings above the UC threshold. There will be earnings disregards, depending on family circumstances. The actual amount of the disregards will be set nearer to October 2013, but are envisaged as being around GBP 3,000 (EUR 3,598 as at 31.03.12) per year for couples without children, GBP 5,700 (EUR 6,480) for couples with children, GBP 7,700 (EUR 9,240) for lone parents and GBP7,000 (EUR 8,400) for couples with a disabled partner. The disregards will be reduced, however, by 1.5 times the recipient’s eligible rent or housing costs to a minimum ‘disregard floor’, likely to be around GBP 520 (EUR 624) per couple and GBP 1,560 (EUR 1,872) for a lone parent, plus GBP 520 (EUR 624) for a first child and GBP 260 (EUR 312) for second and third children, and GBP 2,080 (EUR 2496) for disabled claimants.

Unlike JSA there will be no rules precluding or determining entitlement relating to the number of hours a person is working; UC will be payable to people in or out of work, subject only to its tapered withdrawal as earnings rise. There will be a cap on household benefit payments which will mean that the award of UC cannot exceed a maximum amount when a number of benefits are combined. This maximum will be set on the basis of median earnings after tax and National Insurance for working families. It is currently expected that the cap will be set at GBP 350 (EUR 420) for single households and GBP 500 (EUR 600) for all others.

  • the aim pursued:

The government believes that the main problems with the current welfare system are:

  • Poor work incentives due to the high proportion of earnings lost when claimants enter employment because of tax and withdrawn benefits, resulting in the widespread perception that people are better off on benefits than in work;
  • Complexity, which causes high levels of fraud and error and which makes it difficult for people to understand and secure their entitlement to a range of benefits, administered by different agencies; to calculate the financial implications of entering work; and to have confidence that their benefits will be accurately and quickly adjusted when they move in and out of work;
  • Spiralling costs.

The Government’s White Paper ‘Universal Credit: welfare that works ’ ( Department of Work and Pensions, 2010), claims that the UC will solve these problems by:

  • increasing work incentives, by introducing a standard benefit withdrawal rate of 65%, higher earnings disregards and increased conditionality;
  • radically simplifying the system, by merging the main means-tested benefits for working age claimants into one benefit, payable in and out of work and administered by one agency via extensive use of online technology;
  • reducing costs, through streamlined administration and better targeting.

1.1.3. For each of these changes / innovations please indicate from the main SP who was in favour or supported and who was against or resisted to it, and why:

The Confederation of British Industry (CBI) has welcomed the move to UC because it believes that it will increase labour market flexibility and reduce costs for employers. This will, it argues, have three main impacts on businesses:

  • Businesses should find it easier to fill hard-to-fill vacancies, as moving into job becomes more attractive to claimants;
  • Businesses should find it easier to adapt their staffing patterns to changes in their business;
  • There should be a larger pool of potential employees to choose from.

However, it has raised some concerns. The CBI argues that the current design of UC could be improved and that the transition to the new single benefit scheme poses a number of risks for employers. To make the new benefit more effective it has called upon the government to better account for the cost of transport and childcare and to further reduce the risk of taking up short-term work. It also argues that the government needs to work with employers and welfare-to-work providers to reduce the costs of moving to the new system. CBI (2012) The Government’s Welfare Reform: Universal Credit, Briefing Note, January.

In contrast, the Trades Union Congress (TUC) have argued strongly that government reforms will make people on benefits (including low-paid workers getting in-work help) worse off than they are at present and that the cuts will overwhelmingly affect people already in poverty. They argue that low and middle income families will suffer annual benefit cuts of over GBP 2,700 (EUR 3,240) a year despite the government's pledge that there are to be 'no losers' in the setting up of the new system. In particular, the TUC strongly opposes the cap to UC. There has been widespread opposition to the cap. Indeed, the Children's Society has calculated that around 27,600 adults and 82,400 children could be made homeless as a result of the cap. (TUC Welfare Reform Bill: the 'Benefit Cap'.

According to the TUC numerous studies show that the current levels of benefits are too low to meet current expenditure levels and what the general public think is needed to afford an acceptable minimum standard of living. The consequence of benefits not rising as fast as other forms of income is that the income of benefit recipients will fall further behind those in employment. This, they argue, will inevitably contribute to a widening of income inequalities. (TUC Welfare Benefits: A necessity not a life style choice.

The TUC has also raised concerns about the new work capability assessment, arguing that is specifically designed to make fewer people qualify for disability, whether or not they are capable of work. (TUC The Work Capability Assessment: the DWP's 'Call for Evidence'.

1.2. The main characteristics of the UB system as it is now

1.2.1. Unemployment Insurance.

  • Coverage:

The JSA claimant count in February 2012 was 1.61 million, up 7,200 on the previous month and up 162,100 on a year earlier.

Generally no distinction is made between contribution –based and income-based JSA in the UK national statistics. However, in 2005 only 19% of registered unemployed benefit recipients received contribution based JSA whilst 72% received income based JSA (Clasen, 2007).

  • Eligibility:

To be eligible for contribution-based JSA individuals must be: out of work or working less than 16 hours per week on average; capable of working; available for work (within 48 hours); actively seeking work; and below state pension age. What type of work is being sought, when the claimant is able to work and what they are doing to find work must be set out formally in a Job Seeker’s Agreement. Claimants must also have paid sufficient levels of national security contributions during the previous two tax years.

  • Duration:

Contribution-based JSA is paid for a maximum of 6 months, although individuals can apply for income-based JSA when their entitlement period ends.

  • Replacement rates:

JSA is a flat-rate unemployment benefit. Income based JSA is currently GBP 56.25 (EUR 67.50) for under 25s and GBP 71 (EUR 85.20) for over 25s. JSA is not intended to be a rate that replaces wages. Net replacement rates are exceedingly difficult to calculate because JSA represents only a small element of the benefits usually claimed by unemployed workers in the UK.

However, according to Walsh (2011) comparing the basic level of the JSA with average earnings in 2010 the replacement rate was only 10.9 %. The replacement rate has fallen significantly over the past 40 years largely because of a decision in the 1980s to link unemployment benefit with the changes in prices rather than wages. Had the link with wages been maintained, the basic JSA would now be around GBP 120 (EUR 144) per week. In 2012 the National Minimum Wage is GBP 243 (EUR 292) (JSA is 29%) and average weekly earnings for the private and public sector for January 2012 are GBP 460 (EUR552) (JSA is 15%).

  • Financing:

Contribution-based JSA is paid out of the National Insurance Fund, which is also the source of other contributory benefits, particularly the state pension. Both employees and employers contribute to the fund. Employees pay 12% of earnings between GBP 146 (EUR 175) and GBP 817 (EUR 980) per week and employers pay 13% of earnings of GBP 144 (EUR 173) per week or more.

SP involvement: Yes/No. If Yes, specify briefly:

No.

1.2.2. Unemployment Assistance. Are forms of UA present? If yes, please indicate their general characteristics with specific attention to:

  • Coverage:

See 1.2.1. a) above

  • Eligibility:

To be eligible for contribution-based JSA individuals must be out of work or working less than 16 hours per week on average, and must be capable of working, available for work (within 48 hours) and actively seeking work and below state pension age. What type of work is being sought, when the claimant is able to work and what they are doing to find work are all set out formally in a Job Seeker’s Agreement. Eligibility further depends upon having savings below GBP 8,000 (EUR 9,600).

  • Duration:

In principle indefinite, although the emphasis is on getting people back into work as quickly as possible.

  • Replacement rates:

See 1.2.1 c) above

  • Financing:

JSA is funded from government taxes.

SP involvement: Yes/No. If Yes, specify briefly:

No.

1.2.3. Social Assistance. Are SA programmes with a direct relationship with the UB system and/or SP involvement present? If yes, please highlight the factors underlying such a relationship.

It has always been common, particularly for those with a non-working partner or dependants, to claim additional means-tested benefits, such as housing benefit and council tax relief. Housing benefit payments can be as high as JSA itself. The aim of UC is to consolidate all these benefits into one single payment. See 1.1.2. c) above.

2. SP involvement in the UB regime

2.1. The development phase

2.1.1. In your country, did SP participate in the development phase of UB programmes over the last decade?

Yes.

2.1.2. If yes, please provide detailed information on the SP involvement in the development phase of UB regimes with respect to the following dimensions, distinguishing between UI and UA and reporting any important changes during the decade.

Formally, the government determines the terms and conditions of both insurance and contribution based JSA, with the Department for Work and Pensions (DWP) as the Ministry responsible for policy making and local Job Centre Plus (the public employment service and executive agency of the DWP) offices are in charge of policy implementation for both passive and active labour market policy. Informally, however, both the DWP and Job Centre Plus consult with national, regional and local stakeholders to develop and evaluate policy and delivery. This consultation includes both the TUC and the CBI. The social partners remain, however, just ‘one actor among many’ without any formally institutionalised privileges and their actual impact on both policy initiation and design has been described as minimal (Clasen, 2007). However, for ten years until 2008, the National Employment Panel, an employer-led organisation (more than half the representatives were from large employers in the private sector with only three nominees from the TUC) advised the government on labour market policies and performance. According to Finn (2005), the panel was instrumental in ensuring that the DWP and Job Centre Plus have focused on ‘developing services for employers’. Similarly, the CBI has been invited by the current coalition government to sit on the UC Design Steering Group. In fact, the CBI is the only organisation outside the government that sits on this steering group. In this advisory role it has been working with the government to ensure that the costs of moving to a ‘Real Time Information’ payroll system are minimised and that the transition to UC is as smooth as possible for providers of employment services (CBI, 2011 see above).

2.2. The implementation phase

Social partners have no involvement in this phase.

2.3. The management phase

Social partners have no involvement in this phase.

2.4. The monitoring phase

Social partners have no involvement in this phase.

3. Final observations

3.1. Public debates and policy discussion

The involvement of the social partners in unemployment benefit arrangements has not been an issue of public policy debate in the UK.

3.2. Research

3.3. Other issues

There are no other issues.

4. Commentary

4.1. Assessments and comments

Policy responsibility as well as the provision of active labour market policy remains clearly in the hands of central government, with Job Centre Plus acting as the executive agency of the DWP. The social partners remain no more or less influential than a wide range of other stakeholders.

4.2. Perceived strengths and weaknesses:

The UK coalition government has attempted to win public support for the reduction or withdrawal of welfare entitlements through appeals to frugality, self-sufficiency and fiscal prudence. The reorientation of state assistance towards work, coupled with the proposed simplification of working-age benefits and tax credits presents a particular challenge to some of the most vulnerable people in society. The failure to involve both the social partners formally in this debate is a notable weakness of the UK system.

Helen Newell IRRU

References

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