Labour and ‘Strengthening’ the Social Security Contributory Principle #GE2015

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I have been meaning to write this post for some time. When Rachel Reeves talked earlier this year about extending the period for qualifying for Contribution Jobseeker’s Allowance, many (mostly genuinely concerned) knees jerked and the Daily Mail went into raptures. Every time this happens, I become more and more convinced that most of those reacting to such proposals know little or nothing about the reality of today’s Social Security system.

For the record, these are the current conditions for qualifying (see 1060 onwards) for Contribution Based Jobseeker’s Allowance:

To satisfy the first contribution condition the claimant must have paid Class 1 contributions in respect of one (“the base year”) of the last two complete tax years before the beginning of the relevant benefit year and Class 1 contributions must have been paid before the week that the claimant claims JSA and the claimant must have had relevant earnings for the base year on which the Class 1 contributions have been paid or treated as paid of at least 26 times the Lower Earnings Limit for that tax year (see Appendix 1 to this Chapter).

1 JS Act 95, s 2(1)(a), 2(2) & 35(1)

To satisfy the second contribution condition the claimant must have paid Class 1 contributions or been credited with earnings for the last two complete tax years before the beginning of the relevant benefit year and the earnings factor from the earnings on which primary Class 1 contributions have been paid or treated as being paid or credited must be at least 50 times the LEL for each of those last two complete tax years (see Appendix 1 to this Chapter).

1 JS Act 95, s 2(1)(b), 2(3) & 35(1)

For the record, JSA claim years are calendar years not the Relevant Tax Years!

Now, if you are confused at this point, I am not surprised, but, if you want to comment with any credibility on Social Security (and changes therein) this stuff is what you seriously need to get your head around.

Labour is talking about extending the RTYs from two to five. And therein lies the rub. The number of people who currently meet the first and second conditions is steadily falling. Consequently, very few will be affected by this change and their numbers are dwindling any way. Many who would be affected will claim Income Based JSA instead (as they do now under the current rules).

As for the Daily Mail, well, if anyone is going to lose out from this change then it is their readers who are more than likely to have savings in excess of £16,000 so if they try to claim Income Based JSA they will be nilled out. They may continue to sign on (and be required to seek work etc) in order to receive NI Credits towards their State Pension. I lost track of how many in this group took umbrage at being expected to seek work. They were, after all, not benefiting from signing on. They got a bit testy when I pointed out (at today’s prices) they would either have to purchase Class 3 NI Credits at £13.90 a week, if they were not working or earn more than £153.00 per week (the current Primary Threshold) to obtain the equivalent benefit. Oh and they had to be available and actively seeking work just like everyone else signing on.

If these JSA changes still trouble you, may I ask where you have been all this time? Where were you in 2005 when many, including trades unionists campaigned for a 2% NI start rate as soon as people began earning a wage? The campaigners sought to mitigate the effect of this move by raising the PT to ensure that its effect on low earners was low, if not neutral.  Currently, you pay NI on weekly earnings at 12% between the PT and Upper Earnings Limit.

Why this campaign? Put simply those earning below the PT do not qualify for Contribution Based JSA and Employment and Support Allowance and they make no contribution towards their future State Pension entitlement, because they do not pay NI. They are quite often unlikely to get Income Based Social Security due to the level of household income, for example the earnings of partners. The campaigners highlighted that women were more affected by the prevailing arrangements than men and, of course today more people than ever are being affected due to the increase in zero hours contracts (you only pay NI when you work) and self employment.

I interviewed a fair few of the self-employed who complained about not getting Contribution Based JSA. I asked them why they had not organised their business affairs so they paid Class 1. They said they had been advised not to do so. Paying Class 2 (and Class 3 as is now the case in some circumstances) was a lower amount per week. I tactfully observed that you pays your money and you takes your choice. Then I often had to ask them what they had done with the assets of their business. Assets that might have counted towards the £16,000 (I mentioned above) in some circumstances.

As I also said above, the weekly PT at which you start to pay NI is £153.00. Did you know that there was a weekly Upper Earnings Limit at which you only to pay weekly NI at 2% for earnings above that figure? You only pay NI at 12% within the band set by the PT and UEL. What do so many focus on when discussing tax and benefits? The top rate of Income Tax. The rate above the UEL rarely gets a mention.  Yet NI is a regressive tax.  By the way, the NI Fund does not exist so NI is a tax.

Many people who only sign on for NI Credits often cease to do so and, thereby, leave the JSA count and thus reduce the unemployment figures. Even if you only sign on for credits, you are in the count as are those who, whilst waiting for the end of a sanction continue to be so too. Should someone in the latter group not sign on, but win their appeal against the sanction then, by not doing so they may find it harder to prove they were looking for work so as to receive the JSA and credits they did not receive during the sanction period. Moreover, of course those ineligible to claim both Contribution and Income Based JSA will not appear in the figures, but will do so if they sign on for NI Credits. Complicated, eh?

If you are concerned about the potential future size of your State Pension then I strongly suggest you request a State Pension Forecast. You may be surprised to learn that with NI paid to date and the auto credits paid for the three years, 16, 17 and 18, and those for the five years, 60, 61, 62, 63 and 64 that you already (under today’s rules) qualify for a full State Pension.

I remain unconvinced that Rachel Reeves’ proposals in this area will strengthen the contributory principle in the minds of those of working age. It is a declining issue for many and, to my mind Labour, if it implemented this proposal would finally put it out of its misery and actually cause grief to the average Daily Mail reader, particularly those who think they will never need to claim Social Security.  However, Labour’s proposal will, if implemented, reduce the amount of JSA paid out each year and unemployment as measured by the JSA claimant count, but probably not as measured by the Labour Force Survey.

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4 thoughts on “Labour and ‘Strengthening’ the Social Security Contributory Principle #GE2015

    • They have built up over time and never really been reviewed. A lot of time is spent defending the system and/or anticipating potential exploitation of loopholes. We need a new Beveridge Report not more wheezes. Soon this edifice with its poor foundations will collapse.

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