Britain’s welfare system is not coming up with the goods for those who are unable to work due to disability, an accident or long-term or severe illness, despite their abundantly clear need.
Our report Of Mutual Benefit (launched today with help from Frank Field and Lord Freud) compared Britain’s unemployment coverage with those in peer OECD nations. What we found was startling: on state cover the UK is beaten in terms of generosity for incapacity by the USA, Canada, France, the Netherlands and the Scandinavian nations. Britain’s poor showing got even worse when we included the level of private coverage, such as income protection insurance, available to workers. British workers are not especially well protected by their Government but are much more reliant on it than workers in other developed economies. Our research also pointed to a strong positive correlation between the take-up of income protection and the generosity of state benefits – in countries where fewer are dependent on the state in the event of ill-health the state can afford to be more targeted, and more generous, in its support.
And the benefits are genuinely mutual. Yes, income protection means that people who are unable to work are better off and less vulnerable to the financial shocks that can accompany disability – a person with a pre-disability income of £20,000 a year would be almost £3,000 a year better off with an income protection product than if they relied solely on state benefits. But there are also huge savings available to Government. Under the current means-testing arrangements that same person would save the state over £7,000 a year in pay-outs.
That is why we are calling on the Government to incentivise income protection. A rebate of around £100 a year for those investing in protecting themselves could cover between half and a third of the cost. If such a rebate lifted our levels of employee self-protection to US levels – from 11 per cent to 27 per cent - it could produce a net annual saving for the Exchequer of £2.24 billion. But it would also help to re-establish the founding principle of National Insurance and social security – that people deserve to be spared the extra traumas of financial shocks whilst also dealing with the impact of illness or disability – in an affordable and sustainable way. Real reform for welfare must seek to make welfare work for the ‘squeezed middle’ in their hours of darkest need. Income protection can and should have a real role in achieving that ambition.