Replace Universal Credit With Earnings Insurance, Study Says

By Irene Madongo
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Law360, London (April 29, 2021, 3:04 PM BST) -- The British government should consider introducing an insurance scheme based on earnings for the jobless to replace its current social security system after lessons learnt from the coronavirus pandemic, a think tank said on Thursday.

The Resolution Foundation said the £111 billion (£155 billion) the government spent on supporting incomes during the virus outbreak should serve as a reminder of the importance of welfare support.

But the benefits regime could be strengthened, according to a study carried out by the foundation — which seeks to improve the living standards of low- and middle-income earners — on the pandemic and lessons for the social security system

Government payments under the system before the health crisis hit were set at low, flat rates and provided low levels of earnings replacement for people who lose their jobs, the report said.

The think tank has put forward reforms for the government to consider. These include an earnings insurance scheme — in which the benefits people get is linked to their past employment — for individuals who end up unemployed when a fixed-term contract ends or when they are made redundant.

To be eligible, workers would need to have made adequate national insurance contributions: for example, they should have been in work for 12 months before becoming unemployed.

The program would entitle them to 80% of previous earnings with a cap on payments of £2,500 a month, and payments would last for three to six months, the foundation proposed in its report. The think tank estimates that the scheme could cost the government £900 million or £1.7 billion a year in 2024-25, depending whether the payments last for three or six months.

The figures are based on the labor market immediately before-COVID-19 struck. But the cost could be £3.3 billion for a program that paid out for three months if estimates were linked to 2009, the highest period of unemployment since 1992, according to the report.

The study pointed to the low level of support the security system provides for people aged under 25.

That group gets £59 a week under universal credit, money the government pays out to people on low income or out of work. The figure can go up to £79 when taking into consideration a £20 weekly increase, an additional COVID-19 support payment from the state.

Younger workers emerged as the employees most likely to be furloughed, lose their jobs or experience a drop in earnings, the study said. Unemployment in the 18-24 age group is currently at 12.8%.

"So the lesson we draw, overall, is that the basic level of support provided by the social security system pre-crisis was insufficient given the needs of low-income families, and particularly for younger adults," according to the think tank, which said its suggested policies are intended to be illustrations rather than concrete proposals.

"The experience of the pandemic has made this more apparent to a wider cross-section of society," the think tank added

According to the study, £82 billion was spent in 2020-21 on the three main state policies to support household incomes – the job retention program, the self-employment income support scheme and the increases to benefit entitlements announced as a result of the crisis.

The pandemic has also hit the National Insurance Fund, which pays out retirement pensions and other social benefits expects, causing a multibillion-pound shortfall in its income.

The government has worked alongside banks to provide support for businesses struggling to cope because of the pandemic.

A government spokesperson said its emergency measures have helped people throughout the pandemic and in the face of disruption to the jobs market.

"As restrictions are eased we know that getting into well-paid work is the best way to boost household income which is why our multibillion-pound Plan for Jobs is already helping people re-join the workforce," the spokesperson said. "Meanwhile, there is a comprehensive package of financial support in place for workers who need to take time off due to sickness, with many employers paying more than the minimum level of statutory sick pay."

--Editing by Ed Harris.

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