“Rewarding contribution was a key principle of the Beveridge Report. And it is a key intuition of the British people.
“But it is a principle that has been forgotten by governments of both parties.”
Ed Miliband’s speech yesterday shows he has grasped an essential principle for reform of our bloated welfare state.
Tories should not be in such a hurry to dismiss his ideas, which flow from a new IPPR report.
We know enough about current attitudes to welfare to realise that “something for nothing” benefits are not only cripplingly expensive, they are also unpopular with voters.
Whilst the coalition must be commended for improving work incentives and limiting handouts, it has failed to tackle the underlying problem of means-testing as the basis for welfare payments. Worse, the new universal credit system, despite its noble aims, will further erode the contributory principle.
The IPPR and Mr Miliband should therefore be congratulated on their attempts to change the welfare culture.
There is plenty to criticise in the IPPR report, not least its nanny state proposals for extending paternity leave and increasing childcare subsidies. But its innovative arguments for restructuring welfare to restore the contributory principle deserve real praise.
One of the key reasons why the cost of the welfarestate has soared is the fact that payments out are not linked to payments in.
Beveridge intended that his system would mimic mimic an insurance contract. By pooling risks and resources, the state would act as insurer, but would not discourage self-reliance.
Crucially, he believed payments should not be means-tested, because that discourages participants from working. As the IPPR recognises, this was not just about self-reliance, but social solidarity, and therefore makes sense to Left as much as Right on the political spectrum.
But Beveridge’s ideal was not carried through, and nowadays contribution-based payments have all but disappeared.
As I explained in a report for Theos earlier this year, abandoning the contributory principle removed an important economic constraint. An insurance fund capable of paying out more than it receives cannot be financially sustainable.
So it is very refreshing to read the IPPR’s radical proposal to reform National Insurance, creating an independent National Insurance Fund, of which contributors would become members.
With echoes of the Friendly Societies which preceded the welfare state, this fund would be used only to meet health and social security costs, including pensions – and members would be assured that payments in would be linked to payments out.
By way of some practical first steps, the ideas floated by Ed Miliband include the removal of jobseekers’ allowance from under-21s, and an increase in unemployment support for those who lose their jobs after working (and paying NI) for a given period.
Removing from school leavers the option of drawing benefits before they have even joined the workforce, and enhancing the payments made to those who have worked and contributed, would send a powerful signal about self-reliance.
Labour should continue to develop the IPPR’s ideas, and bring forward some concrete proposals for remodelling National Insurance along Beveridge principles.
The danger for the Conservatives is that they will be left to defend an expensive, unpopular means-tested monster of a welfare state against a Labour model of prudence and self-reliance. Don’t laugh – it could happen.