Coronavirus: Building a stronger safety net for after the crisis

The Government's furlough scheme brings the UK in line with social security systems in much of continental Europe, argues Professor Ashwin Kumar

By Professor Ashwin Kumar, Professor of Social Policy at Manchester Metropolitan University

This piece is adapted from an essay written for Our Other National Debt, a new website for leading thinkers and practitioners to put forward their case on how public policy could change post-Coronavirus. 

It is difficult to overstate the radicalism of Chancellor Rishi Sunak’s Job Retention Scheme. Under pressure of a once-in-a-century health emergency, the UK has become continental. 

We have abandoned our traditional approach of bare minimum support for people out of work to a Bismarckian approach more commonly seen in other parts of Europe. 

Employees who might otherwise have been laid off can get 80% of their previous earnings, up to £2,500 a month – a level of state generosity that’s largely unheard of here in the UK. Previously, losing work would have meant going down to £74 a week for a single person, or £117 for a couple. 

In Germany, benefit rates for people who lose their job but have paid sufficient social insurance contributions are 60% of previous earnings, or 67% for those with children. This can be received for between six and 24 months, depending on length of contributions and age. 

The principle behind such schemes is one of insurance to allow living standards to be maintained.  Contributions pay for the scheme and, when job losses occur, most of the risk is borne by the state rather than the individual. 

In contrast, the objective in the UK is not insurance, but preventing destitution. The £74/£117 a week will only provide for basic necessities and represents a very large cut in income for most workers. The UK approach is that most of the risk of loss of work is borne by the individual. 

There is one part of the social security system that does maintain living standards, although briefly: Statutory Maternity Pay provides 90% of previous earnings, but only for 6 weeks. After that, weekly payments are capped at £151. For people off sick from work, the state’s provision is £96 a week.

It is difficult to overstate the radicalism of Chancellor Rishi Sunak’s Job Retention Scheme. Under pressure of a once-in-a-century health emergency, the UK has become continental.

A reasonable question to ask is why these differences exist. Rishi Sunak faced up to that a few weeks ago and, for a year, has put the standard amount of Universal Credit up from £74 a week to £94, broadly matching Statutory Sick Pay. 

Of these two acts of generosity – paying 80% of wages under the Job Retention Scheme and pushing up the basic minimum in Universal Credit by £20 a week – the former is the most radical. Not only is it a departure from several decades of UK history, but is also by far the more generous.

Whose safety net?

Where does this new generosity come from? Why is the state not restricting all support to pre-existing benefit levels? 

Part of the answer lies in the fact that the government actually wants people to stop working to reduce the spread of the virus, and many of the people affected wouldn’t accept such levels of income. 

We can only imagine how much lower compliance with stay-at-home instructions might have been if £74 or £117 a week was the limit of what was on offer. But of course, people unable to work at other times have had to survive on these amounts. So something has changed. 

Usually the implicit message from the public that government appears to respond to is ‘keep benefits low to stop those people over there living the life of Riley at our expense’. Today, the perceived message is 'we're in trouble – help us'.

The crucial question is whether the people needing help are ‘them’ or ‘us’. Are those who need help because they’re out of work like ‘us’ – the hard-working majority – or do they represent a different tribe who can be labelled as feckless and not trying hard enough?

In normal times, the feeling that those who need help are different is bolstered by a picture of poverty presented by some as being a problem of so-called troubled families, or caused by addiction, or ‘family breakdown’. If the causes of poverty are ‘extreme’ or ‘abnormal’ in this way, then those who need help can’t be like us. Similarly, the notion is that those who’ve lost their job have in some way failed to meet the standards of hard-working Britain.

As the Resolution Foundation has shown, those on the lowest earnings are much more likely to be working in sectors now shut down due to the Coronavirus. Yet, to some degree, the ‘them and us’ rhetoric has broken down as everyone faces visible disruption of one kind or another. This has turned the benefit calculation on its head: the question now is what do people feel they need, not how little can they survive on.

Usually the implicit message from the public that government appears to respond to is ‘keep benefits low to stop those people over there living the life of Riley at our expense’. Today, the perceived message is 'we're in trouble – help us'.

What follows from this sense of empathy with the economic victims of this crisis is a lack of moral criticism: those suffering economically in today’s crisis are not to blame for their plight. 

If all of our work lives are affected by this crisis, we understand the forces that have caused some to lose work. Thus, we consent to our taxes being used to maintain the living standards of the newly workless at far more generous levels than in the past.

If this is part of the story behind our new acceptance of more generous benefit levels, does it mean the opposite was true in the past? Prior to this year, did we experience little sense of shared identity with the steel workers of Redcar as the steel works closed? Did we feel no empathy for retail workers when it seemed that, each week, another firm was going to the wall? 

If not, how else could we justify benefit levels that, when economic need came closer to our door, we could not accept for ourselves?

This is not an easy question to answer, but it is worth reflecting on the reality of unemployment. In December 2019 to February 2020, 62% of the 1.4 million people unemployed had been out of work for no more than six months. The majority of people who are unemployed don’t stay unemployed for long: most people who lose their job are trying to get a new one and succeed.

Economists say there are three types of unemployment: frictional, cyclical and structural. Frictional unemployment is the normal process of people losing their jobs and finding new ones due to the warp and weft of companies expanding and contracting, of some businesses shutting and new ones opening. Cyclical unemployment happens during economic downturns. There’s less economic activity so fewer people and businesses want to buy goods or services, and job losses follow. Structural unemployment is what we’re seeing in retail right now: sectors of the economy going through longer-term decline displacing workers as firms merge and fold.

What unites all of these causes of unemployment is that, whichever we are talking about, it makes no more sense to attach blame to people who lose their jobs in those circumstances as it does when the underlying cause is a global pandemic. 

The other social distancing

However much logic suggests that blame for being unemployed was no more deserved before the pandemic as now, that is not the way the public thought. The British Social Attitudes Survey shows that 2010 was a high point for the view that cutting benefits would mean that people would learn to stand on their own two feet.

In that year, unemployment was at a 14-year high because of the most severe recession for decades. So when, conceivably, the least possible blame could be attached to people being out of work, the public was more convinced than at any other time that cutting benefits was what was needed.

What this shows is that our pre-coronavirus attitude was close to ‘blame the unemployed’ and ‘persuade them to change their ways by only providing subsistence-level benefits’. But this depended on another form of social distancing to the one we are experiencing now, one in which we distanced from ourselves the idea of unemployment and assumed it happened to someone else who, let’s face it, surely must bear some blame for their situation.

This period of ‘new Bismarckianism’ gives us the opportunity to end the ‘them and us’ of the welfare debate and move to a national conversation with more empathy and less division.

Roger Harding’s essay touches on how this pandemic has brought economic crisis much closer to all of our doors (even if, in reality, the low-paid are much more likely to have it cross their threshold).  This proximity has changed the blame game. Now, we are conscious of our common risks, and want the protection of a pay-out from an insurance policy for which we never bothered to pay the premiums.

So what is the prescription for the future? Does it mean we should keep in place unemployment insurance with 80% replacement ratios for the first few months after losing a job? Such provision cannot be a free lunch and would have to be paid for through higher national insurance contributions. 

The time is now for just such a conversation. More importantly, this period of ‘new Bismarckianism’ gives us the opportunity to end the ‘them and us’ of the welfare debate and move to a national conversation with more empathy and less division.

This crisis won’t last forever. At some point, the lockdown will end, business order books will refill, and our shops will hum with activity. The question for us all is, whether, at that point, our welfare blame game will restart too.