The role of the contributory principle in welfare

A return to the ‘contributory principle’ isn’t a silver bullet that will fix our welfare system, but it could help us to focus on the aims and needs of social security, as Kate Bell argues.

The problem with proposing grand schemes for ‘welfare reform’ is that the social security system needs to achieve several goals.

We want a system that protects people against risk, whether that’s the unpredictable risks of unemployment or sickness, or the (hopefully) predictable risk of old age. We want our system to promote employment, not least because it won’t be affordable if it doesn’t; demographic shifts towards an older population means we’ll need an increased proportion of working age people to be employed to be able to meet the costs implied. The system needs to recognise the extra costs that society imposes on certain groups, whether that’s those with children or people who have a disability.

At Child Poverty Action Group, our priority is a system that prevents poverty among children. And not only do we want the system to meet those goals, we want it to do so in a way that doesn’t stigmatise the recipients of support, and that does command the public support necessary to ensure that it will continue to be funded.

The Beveridge system that set out to meet these goals combined a contributory system, that is, a system in which entitlement to benefits depended on prior contributions – for meeting the costs of unemployment, sickness, and old age – with a system of family allowances to meet the additional costs of children, and the assumption that the government would remain committed to full employment. As Declan Gaffney and I set out in a report for the TUC, the extent to which the system remains contributory has declined significantly over time, with the coalition government’s decision to restrict entitlement to employment and support allowance on the basis of contributions (rather than on low income) to one year only serving to hasten its demise.

Could a return to a more contributory system help us meet the goals set out above? One area where we think it might help is in ensuring that the system promotes employment. If we think of contributory benefits as an insurance policy against poverty during periods of sickness and unemployment, then we can see them as an extra perk to having a job – a bit like how employers often portray private health. But moving towards additional payments for those who have contributed is likely to be expensive; this is probably an option for the long term.

Another way in which contributory benefits might help boost employment however is in using them to help solve existing problems that people face when seeking to get into work. We know that many European countries have significantly higher female employment rates than the UK, in part because of the problems women here have in combining paid work with family life. In the TUC report, we proposed a new form of contributory benefit to cover the existing period of unpaid parental leave; this might be a small step towards solving the problems many families face when trying to take short periods off work to care for children, and make the decision to take a paid job more realistic for some families.

Would a system based more on contributions be more popular? We know that countries where their social security systems are more contributory do enjoy higher levels of public support, and see lower levels of stigma for claimants (see here for more discussion of this). Moving towards a more contributory system might reinforce the idea that the social security system is something that people both pay into and get something out of, but this looks to be a long term process.

We think that the current negative attitudes towards benefit claimants, and the consequent lack of support for the system as a whole, come less from the design of that system than from the rhetoric that surrounds it. Despite steadily falling benefit rolls prior to the recession, there has been a sharp increase in political language, and accompanying media coverage that talks about ‘scrounging’ ‘fraud’ and ‘dependency’. This rhetoric creates a vicious cycle, in which attempts to reform the system to ‘get tough on scrounging’ simply reinforce the perception that this is a problem, rather than presenting a more positive vision of a system that, for all its flaws, has not seen an increase either in fraud, or, prior to the recession, in spending as a proportion of GDP (see figure 4.1 in this IFS briefing). A short term priority needs to be changing the language used about social security.

What about poverty, and in particular child poverty? Beveridge saw the costs of children as being met outside the contributory system, through family allowances, and it’s here that we need to start when thinking about support for children, with a priority being to increase child benefit. But increasing maternal employment rates will also be critical to reducing child poverty. A contributory system could help to achieve that, but we’ll also need investment in childcare, and a greater recognition of the need for flexibility in working practices.

A return to the ‘contributory principle’ isn’t a silver bullet that will ‘fix’ the social security system. But if we recognise the distinct aims that that system needs to meet, and the different ways in which the contributory benefits might help to achieve them, it could be a valuable part of the toolkit.

• Kate Bell is London Campaigns Co-ordinator at the Child Poverty Action Group (CPAG)
• Read the rest of our series of articles on welfare reform. From Transactional Welfare to Relational Welfare and A Social Contract for Local Growth