The government plans to introduce a new ‘unemployment insurance’ (UI) benefit to replace the two current contributory out-of-work benefits: new style employment & support allowance (NS ESA) for those with health conditions, which is available indefinitely for most claimants, and new style jobseeker’s allowance (NS JSA), which is available for up to 6 months for those actively looking for work. The new UI would be time-limited and paid at the higher NS ESA rate, currently £140.55 a week, a significant boost from the current NS JSA rate of £92.05 a week. With the proposed reform, the IFS has issued their reaction today highlighting that: those unemployed for short periods (currently eligible for NS JSA) would benefit from higher insurance against job loss.
They also highlight that most of those who would have been eligible for NS ESA stand to lose out because they tend to stay on the benefit for many years (although low-income households could continue to receive the same level of support through universal credit).
Bringing a broader perspective to it, the IFS also says that because 88% of current spending on contributory benefits goes towards claims lasting at least a year, the fiscal savings from time-limiting the new UI will far outstrip the cost of the proposed higher benefit level.
According to the IFS, the key outstanding choice for the government is how long the benefit will be paid for. We estimate that a 12-month UI benefit would cover the entire out-of-work spells of around half (53%) of those who lose their jobs, and still save around £2 billion a year in the long run, after any transitional protections are exhausted. A 6-month UI would save around £3 billion a year. Savings would take much longer to materialise if the policy only applied to new claimants, as many stay on NS ESA for a long time.
These are among the findings of a new chapter published today from this year’s IFS Green Budget, funded by the Nuffield Foundation and produced in association with Barclays.
Martin Mikloš, Research Economist at IFS and an author of the chapter, said:
‘Contributory benefits in the UK, available to those who have previously “paid in” and not means-tested based on household income, are a small but significant part of the overall social safety net. Their design has been neglected for many years and it is high time they were modernised, not least so that they work better alongside the rest of the benefits system. The reform offers an opportunity to improve some of the issues with the current system.
‘The government’s proposed unemployment insurance would substantially increase the benefit rate for jobseekers, but that rate would still be low by European standards. Most European countries pay unemployment insurance benefits for 12 months or more. Making the new UI available for 12 months would still yield fiscal savings relative to the current system.’
Anvar Sarygulov, Research Grants and Programmes Manager at the Nuffield Foundation, said:
‘Given the UK’s internationally low levels of support for the newly unemployed, there is a strong case for strengthening the level and duration of support offered to them through contributory benefits. However, the government needs to avoid pulling the rug out from under existing long-term claimants with health conditions by thinking carefully about the delivery and design of any transitional support.’
