UK Overhaul Of Jobless Benefits Would Save £3 Billion, IFS Says

UK government plans to introduce a new Unemployment Insurance benefit could save as much as £3 billion ($4 billion) a year and increase weekly payments to jobseekers, according to the Institute for Fiscal Studies.Under the proposal, two out-of-work benefits would be replaced with a single time-limited allowance based on past contributions into the social-security system. Payments will be set at the higher rate of the two, currently reserved for people with health conditions.

The IFS says that limiting this benefit to six or 12 months will more than offset the increased payments to jobseekers by reducing the cost of long-term claimants, who currently make up 88% of spending on contribution-based unemployment support.The analysis provides a boost for the government in its battle to contain the spiraling welfare bill and put the public finances back on track. In July, it was forced to U-turn on plans to cut £5 billion from disability and health-related benefits after a rebellion by Labour lawmakers. The Office for Budget Responsibility projects working-age welfare spending to rise almost 20% in the next five years.

In a report published Thursday, the IFS said the level of savings from the reform will depend on the time limit imposed. A six-month limit to claiming Unemployment Insurance would save a projected £3 billion, with the figure falling to £2 billion if in place for a year. These savings come from long-term claimants with health conditions, most of whom currently receive support indefinitely.The UK is less generous than its OECD peers when it comes to supporting those who lose their jobs. The current Jobseeker’s Allowance is set at only 12% of mean wages – or £92.05 a week – when the OECD average is 55% and higher still elsewhere in Europe. Unemployment Insurance would see the proportion rise to 19%.

“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,” said Anvar Sarygulov, research grants and programs manager at the Nuffield Foundation, which funded the IFS study. “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.”The unemployment insurance proposal came in a government paper earlier this year, alongside the now-scrapped changes to health benefits. The IFS analysis is contained in a pre-released chapter of its forthcoming Green Budget.

Source: Bloomberg Europe