Blog – Responsibility, contributions, social insurance and transparency

Yesterday Ed Miliband made by far the most significant speech of his leadership. Responsibility is a big and important theme. It has the potential to break through. It resonates with people’s sense of what’s going on in the country. And it’s a real word. The clarity and simplicity of which would have appealed to George Orwell and not just the Westminster policy community.

He was right to frame the debate in terms of society as a whole. As Julia Unwin, Chief Executive of the JRF has pointed out, the problem with the way that the Coalition too often talk about welfare conditionality is that it implies that it’s only benefit recipients whose behaviour will determine what they get in return. The 2020 Public Services Commission argued for a new social contract between citizens, society and the state, based on the principle of social citizenship:
“As citizens we should have a duty to contribute as well as a right to receive support – responsibility and reciprocity are essential characteristics of a more resilient society’
Miliband is right to suggest that this can take Labour into interesting policy areas both in terms of the application of these principles to social housing policy at one end of the spectrum and to top pay at the other.

The next question for Labour, which Liam Byrne will be looking at, is where does this line of thinking take you when you consider the future of National Insurance and the contributory principle? For Beveridge the contributory principle was central which was why he talked not of the welfare state, but ‘the social insurance state’. Much of the great social policy reforms of the 20th century were based on introducing and then extending NI. But by the 60s and 70s the boundary between general taxation and contributory benefits had become badly blurred.

Perhaps surprisingly, the Conservatives despite being strongly committed to the idea of responsibility have often implemented policies which, whilst rational and understandable, have undermined the contributory principle. In the 1980s it was the Conservative government which removed much of the distinction between the more generous unemployment benefit and what was then called supplementary benefit. Fast forward to today and, again for good reasons about simplicity and reforming the benefits taper, the Coalition Government is moving away from the contributory principle with the Universal Credit and the Single Pension.

The Coalition’s approach has the great benefit of clarity and simplicity. This is a welcome antidote to the Heath Robinson structure of contributions, benefits, credits and general taxation devised by Gordon Brown. But as Ed Miliband and Liam Byrne have indicated, there is an alternative to simplification based on merging tax and national insurance. It will be interesting to see how far they now want to take the argument. There is a good case for re applying the contributory principle to unemployment benefit so that there is a proper distinction between those who have contributed NI and those who haven’t. But there is a much wider opportunity to frame a new set of contributory principles applying to a range of areas from HE funding to adult social care. The danger at the moment is that policies are emerging for each of these areas in the absence of the development of a new consensus about the underlying contributory and partnership principles on which they should be based.

If Labour is serious about this, then this could be the beginning of a very fruitful exploration of a new social settlement. An early test will be how much Liam Byrne, Ed Milliband and Ed Balls are prepared to recognise the need for fiscal transparency. A study for the 2020 Public Services Commission showed that the ONS could only account for 60% of taxes and 50% of benefits across all households ( “The Fiscal Landscape: Understanding contributions and benefits”, Volterra, published by the 2020 Public Services Trust, 2009). If a new wave of policies based on the contributory principle are to have any credibility then there will need to be much greater transparency about who pays and what they get back. One idea worth developing would be an annual online statement, which records contributions made and benefits received. These could also be used to enable people to manage contributions and benefits across their lifecycle. And they could be the basis for wider social accounts which also record social contribution, including ‘care credits’. But underpinning this there will need to be greater hypothecation in tax and spend  and more differentiation in terms of entitlements, both of which have been no go areas for Labour in recent years.