Why our social security system is not fit for purpose

And our social security system will have an important role to play both for individuals affected by consequent changes in the labour market and for the economy as a whole. It both needs to help us navigate through these changes and also help improve our low growth in living standards  and high levels of inequality.

The big question is how well is it geared up for that and how well is it aligned with the challenges to come?

The answers appear to be that it’s not and it isn’t.

And the tragedy is that it won’t be either unless and until we grasp the importance of aligning our social security safety net with policy priorities.

In the past this was understood as is made clear by an important report just published by the Resolution Foundation.

Social Insecurity is part of the Economy 2030 inquiry a wide ranging survey of the changes faced by the UK over the next decade. The focus of this report is the social security system.

The Welfare State was created by a succession of different pieces of legislation in the immediate aftermath of  the Second World War. It was based on the Beveridge Report of 1942, which, with conflict at its height, promised to reward people for their sacrifice by addressing the "five giants on the road of reconstruction", namely: "Want… Disease, Ignorance, Squalor and Idleness". The report’s other great legacy was the National Health Service.

At first glance all looks well. As a proportion of GDP, spending on non-pensioner welfare benefits has risen from 1.7 per cent in 1948-49, peaking at 5.7 per cent following the financial crisis, and is forecast to be 4.5 per cent of GDP in 2026-27.

Yet the overall expansion of social services is misleading because it is not matched by a rise in the generosity of the basic level of benefits: unemployment benefit in 2022-23 will be at its lowest level in real-terms since 1990-91, at just £77.29, and is only slightly above an estimated destitution income level of £70 per week.

To be clear destitution means going without the essentials we all need to eat, stay warm and dry, and keep clean.

 As a proportion of average earnings ,unemployment benefit  now stands below 14 per cent, half the level it was in the 1970s.

So what we have in the UK is extremely low basic levels of benefits. The focus for social security spending has been on those with extra, unavoidable costs such as parents, those facing high housing costs and those who are long-term sick or have disabilities.

This makes us an outlier among developed countries.

It also creates two other consequences that render us especially vulnerable to the changing times we live in.

The first is our ability to withstand sudden economic shock. We saw this very clearly during the pandemic where our social security system proved to be inadequate. Special measures such as paid furlough schemes and, for the self-employed, SEISS payments were introduced because of the financial carnage on so many households, that would be wrought without them.

The temporary increase to Universal Credit also helped to lessen the savage impact that falling back on basic unemployment rates would otherwise have had on those made redundant during the period.

As we’ve seen those without children are and were especially vulnerable should they suffer the misfortune of losing their jobs. It gets worse. Benefits are linked to consumer prices rather than average incomes. The impact has been twofold: they have fallen further and further behind wages and because any increases are retrospective they provide no protection against inflation.

This week Scope explores the impact food price inflation has on those in poverty. The effect on those on unemployment benefit already on the brink of destitution is an all too predictable tragedy.

The pandemic also highlighted that our existing Statutory Sick Pay (SSP) system gives workers little protection against being ill, and so puts more of us at risk from an infectious disease (as well as excluding self-employed workers entirely).

To be entitled to any SSP at all, workers have to be classified as an employee or agency worker and have to earn at least £120 per week to qualify. These eligibility rules mean that around 2 million low-paid employees, as well as all 5 million self-employed workers, get nothing.

The inadequacy of benefits is the reason why absolute poverty among working-age adults has scarcely fallen since in the past 20 years (from 21 per cent in 2001-02 to 17 per cent in 2019-20). The Social Insecurity report describes this as “an exceptionally poor performance: it is normally taken for granted that a modern economy can provide increases in real-terms living standards in the medium-term.”

“The level of income for households towards the bottom is not just failing to grow with the economy, but is also inadequate. Just over 7 per cent of adults, and over 12 per cent of children lived in a food-insecure household before the pandemic, and food bank use increased by 135 per cent between 2016 and the midst of the Covid-19 crisis in 2020.”

Politicians are fond of talking about the imperative of addressing poverty and inequality. They know the impacts poverty has on health and mental health, yet the root cause of it is not acknowledged, never mind addressed.  

 This needs to change and our experience during the pandemic demonstrated that the current welfare system is not fit for purpose. But there’s more. The sheer pace of technological change will mean that increasing numbers of the workforce will need to leave current occupations and re-train for other roles. But how can they without an adequate safety net?

Even if there were one the training isn’t there. The UK spends much less on active labour market programmes for the unemployed than our competitors: the UK spends 0.2 per cent of GDP on such programmes, whereas the OECD average is 0.5 per cent of GDP, and almost all comparable European economies spend more than that.

There’s a lot to be done.