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The government should establish a new 'National Salary Insurance'to give people extra cash when they lose their job but require them to repay it when they return to work, according to IPPR. The radical welfare reform proposals are outlined in a new report published by IPPR today.

IPPR argues that a new National Salary Insurance could offer working people who become unemployed up to 70 per cent of their previous earnings in non-means tested support for up to six months (capped at a maximum of £200 a week). This would incorporate their existing entitlement to contributory JSA (£67.50 a week), trebling the amount of support available to people when they lose their job.

A million people could benefit from extra cash - up to an additional £132.50 a week - but would have to be repay it once they returned to work and could afford to do so, charged at a zero real rate of interest. There would be a cap on the amount that people could borrow at any one time - equivalent to the maximum support for the full six months (£3,445). People who had never worked or been out of work for more than a year during the last twowould not be eligible.

Once people return to work they would become liable to repay the extra support they had received through additional National Insurance Contributions. This could be collected through a higher percentage rate of employee NICs or an extra flat rate cash amount per week. Someone who had borrowed the maximum amount possible - £3,445 - and repaid £20 a week would clear their debt in a little over three years. At £30 a week, repayment of the full amount would take just over two years.

James Purnell, IPPR Chair of Trustees, said:

"Successive governments have increased conditionality for those on benefits. This has strengthened the idea of mutual obligations. But these reforms have not addressed the concern that the welfare state does not provide enough protection for people who have contributed into the system, often for many years.
"The sharp rise in unemployment has brought this weakness sharply into focus. People losing their jobs find themselves entitled to just £65 a week in benefits, the same as those who had never worked and not contributed.
"This reform would significantly enhance the protection that people who have contributed can receive in times of their greatest need. It would mean the welfare state offered real income security in a more risky world, while strengthening the principle that people are rewarded for working and contributing to the system."

Notes to editors

Download National Salary Insurance: Reforming the Welfare State to provide real protection

IPPR analysis shows how National Salary Insurance would work for a typical worker made redundant:
Case study example: Construction worker, two children
Previous salary: £429 a week (median occupational wage)
Under current system: £208.86 a week, after housing costs (£65.40 JSA, plus £98.67 Child Tax Credit and £33.70 Child Benefit)
Under new system: £332.37 a week, after housing costs (£200 NSI, plus £98.67 Child Tax Credit and £33.70 Child Benefit)
Replacement rate up from 49 per cent of previous earnings to 77 per cent

Case study example: Secretary, no children
Previous salary: £277.90 a week (median occupational wage)
Under current system: £65.40, after housing costs
Under new system: £194.53 a week, after housing costs
Replacement rate up from 24 per cent of previous earnings to 70 per cent

These case study examples are based on the most up to date figures from DWP, for April 2010, and assume no change to support with housing costs.

IPPR analysis shows that the proportion of previous earnings available to people (known as 'replacement rates') in the UK is as low as, or lower, than every OECD country apart from Ireland, Hungary, South Korea and Australia. It is at least 15 percentage points below major European neighbours such as Portugal, France, Sweden, Netherlands, Denmark and Germany (a full table in contained in the new report).

Based on the estimates associated with the student loans system, the net costs of National Salary Insurance to the government would be somewhere between £180 million and £520 million a year. However, there are good reasons for thinking that the net costs of this reform would be far lower. The maximum amount loaned to an individual would be three or four times lower; repayments would start as soon as people were back in work for a month and earning above the Primary Threshold for NICs; and the likelihood of people re-entering work quickly would be higher, given the operation of benefit conditionality.

IPPR supports the introduction of the Universal Credit but believes this reform could complement its effectiveness. Previous IPPR research includes:

Contacts

Wednesday and Friday - Richard Darlington: 07525 481 602, r.darlington@ippr.org

Thursday - Tamsin Crimmens: 0191 233 9051 / 07800 742 262 / t.crimmens@ippr.org