The Government’s plans to merge two out-of-work benefits could save billions of pounds a year, a new report has suggested.
The Institute for Fiscal Studies (IFS) has concluded the proposed changes could save between £2 billion and £3 billion a year, but a charity has warned the Government needs to “avoid pulling the rug out” from under long-term claimants with health conditions.
In March, a Government green paper set out plans to “fix the broken benefits system”, including a consultation on merging jobseeker’s allowance (JSA) and employment support allowance (ESA) into one unemployment insurance (UI) benefit.
New style JSA is available for up to six months for those actively looking for work while new-style ESA is given to those with health conditions that affect how much they can work, and is available indefinitely for most claimants.
UI would be time-limited but is expected to be paid at the higher ESA rate, which is currently £140.55 a week. This would be a significant boost from the current JSA rate of £92.05.
While the move would be a big uplift for those seeking jobs, it could come as a blow to those with long-term health issues.
When the consultation was announced in March, Work and Pensions Secretary Liz Kendall said: “If you have paid into the system, you’ll get stronger income protection while we help you get back on track.”
The IFS has estimated that a 12-month UI benefit would cover the entire out-of-work spells of around 53% of those who lose their jobs and save around £2 billion a year in the long run.
A six-month UI would save around £3 billion a year.
However, they warned that savings would take longer to materialise if the policy only applied to new claimants.
Martin Miklos, research economist at IFS and one of the authors of the Green Budget report, 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.”
Mr Miklos said reform offers an opportunity to improve issues with the current system and would substantially increase the benefit rate for jobseekers
However, he said the rate would still be low by European standards.
“Most European countries pay unemployment insurance benefits for 12 months or more,” he said.
“Making the new UI available for 12 months would still yield fiscal savings relative to the current system.”
Anvar Sarygulov, programmes manager at the Nuffield Foundation charitable trust, which funded the report, 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.”
