- Enhanced unemployment insurance to reward jobseekers while
reducing support for long-term claimants of contributory
disability benefits
The government plans to introduce a new ‘unemployment insurance'
(UI) benefit to replace the two current contributory out-of-work
benefits: new style employment & support allowance (NS ESA)
for those with health conditions, which is available indefinitely
for most claimants, and new style jobseeker's allowance (NS JSA),
which is available for up to 6 months for those actively looking
for work. The new UI would be time-limited and paid at
the higher NS ESA rate, currently £140.55 a week, a
significant boost from the current NS JSA rate of £92.05 a week.
With the proposed reform:
- Those unemployed for short periods (currently eligible for NS
JSA) would benefit from higher insurance against job loss.
- Most of those who would have been eligible for NS ESA stand
to lose out because they tend to stay on the benefit for many
years (although low-income households could continue to receive
the same level of support through universal credit).
- Because 88% of current spending on contributory benefits goes
towards claims lasting at least a year, the fiscal
savings from time-limiting the new UI will far outstrip the cost
of the proposed higher benefit level.
The key outstanding choice for the government is how long the
benefit will be paid for. We estimate that a 12-month UI
benefit would cover the entire out-of-work spells of around half
(53%) of those who lose their jobs, and still save around £2
billion a year in the long run, after any transitional
protections are exhausted. A 6-month UI would save around £3
billion a year. Savings would take much longer to materialise if
the policy only applied to new claimants, as many stay on NS ESA
for a long time.
These are among the findings of a new chapter published today
from this year's IFS Green Budget, funded by the
Nuffield Foundation and produced in association with
Barclays.
Martin Mikloš, Research Economist at IFS and an author of
the chapter, said:
‘Contributory benefits in the UK, available to those who have
previously “paid in” and not means-tested based on household
income, are a small but significant part of the overall social
safety net. Their design has been neglected for many years and it
is high time they were modernised, not least so that they work
better alongside the rest of the benefits system. The reform
offers an opportunity to improve some of the issues with the
current system.
‘The government's proposed unemployment insurance would
substantially increase the benefit rate for jobseekers, but that
rate would still be low by European standards. Most European
countries pay unemployment insurance benefits for 12 months or
more. Making the new UI available for 12 months would still yield
fiscal savings relative to the current system.'
Anvar Sarygulov, Research Grants and Programmes Manager
at the Nuffield Foundation, said:
‘Given the UK's internationally low levels of support for the
newly unemployed, there is a strong case for strengthening the
level and duration of support offered to them through
contributory benefits. However, the government needs to avoid
pulling the rug out from under existing long-term claimants with
health conditions by thinking carefully about the delivery and
design of any transitional support.'
ENDS
Notes to Editor
Options for unemployment insurance is
an IFS Green Budget 2025 chapter
by Martin Mikloš and Xiaowei Xu.
