Tuesday, November 26, 2013

"Beyond Beveridge"

New work from Peter Saunders who provided advice to the Welfare Working Group:

A new Civitas book proposes a sweeping overhaul of the benefits system which would see National Insurance abolished and replaced with a system of personal welfare accounts that would put the contributory principle back at the heart of social security. The accounts could be used for saving, insurance and even loans - helping people spread the costs of unemployment, parental leave, higher education and old age across their lifetime.
Of course people would be compelled to contribute to these accounts which finds disfavour with libertarians.

My position has always been I'd rather be compelled to provide for myself than compelled to provide for someone else.

Beyond Beveridge can be found here. No, I haven't read it yet. And at 179 pages I probably won't.

But here's the plan for people interested in how we get there from here (given NZ's social security set up is similar). It sounds Roger Douglasish in the detail:

1. Wind up the National Insurance system:
The employee 12 per cent contribution should be added to
the basic income tax rate making a new basic rate of 32 per
cent (with appropriate adjustments for older workers, the
self-employed and people receiving income from savings
and pensions). The higher tax rate should rise to 42 per
cent to take account of the two per cent NIC levied on
earnings above the upper earnings limit. The 13.8 per cent
employers’ NICs should become a Payroll Tax.
2. Establish entitlement to the new state pension through
Scrapping NICs means new eligibility rules are needed for
the state pension. Eligibility should depend on 10+ years
of residency in this country. Pension Credit should be

3. Phase in a state pension means-test for new retirees
Over the next 40 years, if NICs are abolished now, the
contributory component of people’s state pensions will
gradually get smaller, and the taxpayer-funded component
will get larger, until eventually the whole of every state
pension claim will be funded out of tax revenues. The tax-
funded component of state pensions should be means-
4. Freeze current National Insurance entitlements and recognise
them as government debt
Entitlements based on contributions up to the time National
Insurance is scrapped should be honoured by freezing
people’s NIC records, indexing their existing entitlement
to take account of inflation, and paying this amount as a
weekly or monthly pension from when they retire. The
future cost of these payments (currently estimated at £3.8
trillion) should be explicitly acknowledged as part of total
public sector borrowing. 
5: Make membership of workplace pension schemes compulsory
The right of workers to opt out of workplace pensions
should be ended. With a means-tested state pension, saving
in private retirement accounts has to be made compulsory
to minimise moral hazard. 
6. Boost personal retirement savings accounts
Minimum contributions into the new workplace pensions
schemes add up to 11 per cent of salary (combining the
employee’s and employer’s contribution, and adding the
value of government tax relief). This is too low to guarantee
self-reliance in retirement. Contributions should be boosted
by reducing the government’s tax-take from employees and
employers. In particular, savings accruing from means-
testing the state pension should be used to reduce the employer Payroll Tax from 13.8 per cent to 12 per cent (switching the 1.8 per cent reduction into an enhanced
employer contribution to workplace pensions), and the basic
rate of income tax for employees from 32 per cent to 30 per
cent (switching the 2 per cent reduction into an enhanced
employee contribution to the workplace pension). This
would take the minimum total contribution into workplace
pensions to almost 15 per cent. Proceeds from privatisation
of Royal Mail and the state-owned bank assets should also
be used to boost workers’ pension accounts. 
7. Gradually extend the permitted uses of workplace pension
funds to develop them into personal welfare accounts
Contributory unemployment and sickness benefits should
be scrapped two years after NICs are ended (all claimants
would then get the non-contributory Universal Credit).
At the same time, people should be allowed to use their
personal welfare accounts (or borrow against them) to
provide a benefits-level income for the first 6 months out
of work, during which time there should be no conditions
applied to them. Existing and future student loans should
be integrated into personal welfare accounts and, over
time, accounts should be further extended to cover periods
of parental leave to care for children and basic insurance
against old-age care costs. 
8. Apply activity conditions to receipt of working-age benefits
Unconditional support for people who cannot be expected
to work (severely disabled people and single parents with
infant children under one year) should continue, but for
those who are capable of working full- or part-time, and
who cannot support themselves from their own personal
welfare accounts, fairness requires that appropriate work-
based activity conditions should be attached to receipt of
state benefits. No activity conditions should be attached
to jobless people drawing on their own personal welfare


Anonymous said...

It all seems very very complicated.

And with tax rates (post VAT) of up to 60% they really can't be serious - can they?

But the report has the kernel of a successful scheme - indeed the only successful reforms that have ever worked:

* Wind up the National Insurance system
* unemployment and sickness benefits should be scrapped

There - that's not too hard is it?

And the one big confusion:

Entitlements based on contributions up to the time National Insurance is scrapped should be honoured

What are we doing? Scrapping NI or "honouring" it? The point of welfare reform is to drive home the complete necessity for self-reliance. That's why we cannot just scrap the benefits in the future - we must end them for existing claimants, and any eligibility - in the case of NI - spurious amounts nominally held by the "government" MUST be cancelled too. In the real world, remember, all that money has been spent many times over to provide benefits for other people: there isn't any NI money in the UK (just like there isn't any super money in NZ!)

Cancel the lot.

Anonymous said...

This is a no-brainer. Any party with this as their welfare policy would get my vote. Ooops - no one seems to want my vote!