WIREDGOV

Demos: British workers amongst worst protected in OECD countries

•    UK below USA, Canada, Germany, France, Netherlands and Scandinavian countries in terms of employee protection in case of ill health
•    Countries with higher private protection have better state benefits
•    Increasing personal welfare protection could save the state over £2bn annually
•    Squeezed middle punished by means testing of savings
•    Reform to sick pay could get 43 per cent of claimants back into work

Poor Financial Protection

British workers are insufficiently protected by incapacity welfare finds a major new report on the welfare system by the independent think tank Demos.  Britain came just 8th in a new Index of Financial Protection compiled by the think tank, well below peer nations.

The Index of Financial Protection measures the level of protection employees have in the case of ill health from both the state and private sector.  It found a strong correlation between the level of state protect and private protection, showing that private insurance can strengthen state support.

Britain scored just 44 out of a total score of 100, 16 points lower than the USA (60/100).  While private protection in Britain was predictably poor at 26, the level of state support was worse than expected at 61, coming in 7 points below state welfare the USA.

Squeezed middle suffer most

The report found that the ‘squeezed middle’ is severely let-down by state benefits in the case of ill health.  According to Of Mutual Benefit, Employment Support Allowance penalises savers and homeowners by means testing for savings above £16,000, punishing good financial planning and leaving middle earners more open to the financial shock in the case of unemployment. 

Reform SSP to get people back to work

The Demos report shows reform to Statutory Sick Pay (SSP) could cut the number of people moving onto Employment Support Allowance by 43 per cent and save the taxpayer £139 million a year. Around 300,000 people a year flow from SSP to ESA costing government £385 million per year. Currently, only 65 per cent of people on long term sick leave return to work. Evidence in the report suggests that profit incentives for insurance providers encourage targeted and tailored early intervention for individuals on SSP, improving the number of those returning to work within the first six months by as much as 43 per cent.

Recommendations:

Encouraging the take-up of personal welfare insurance through National Insurance rebates could save the state around £2.24bn yearly – improving the support for individuals and saving Government money.  A person with a pre-disability income of £20,000 could expect to be £2,500 better off with personal welfare insurance and would save the state £7,569 every year. Someone earning £38,000 would save the taxpayer £9,507 per year.

Savings above £16,000 should be exempt from means testing for the first six months of unemployment, to allow the squeezed middle to also benefit from government support which they contribute to through NI contributions.  This would soften the blow that comes with sickness- or disability-related unemployment by allowing people to keep up mortgage payments and incentivise them to get back into work within six months before means testing kicks in.

Employers should be obliged to insure their employees against the risk of accidents, ill health and disability to cut the cost for the state, the employer and to boost the number of those on long-term sick leave returning to work.

Max Wind-Cowie, author of the report said:

“Our welfare system is badly broken, and with people living and working longer we need to make sickness and disability support sustainable. The squeezed middle get a raw deal – contributing to a so-called ‘safety net’ that can’t protect them from financial shocks.

“Britain could be more generous to its unemployed and save money by sharing responsibility for incapacity support between the individual, the employer and the state. Personal income protection is mutually rewarding – it serves the interests of the individual and the state.

“Far from privatising the welfare system, this would allow people who can take more responsibility to do so, and allow the state to target more generous support at those who need it.”

of mutual benefit

Notes to editors

Demos’ Index of Financial Protection gives a broad insight into how several developed countries perform in protecting their workforce against the costs of unemployment. It considers how generous different countries’ welfare states are and how much individuals protect themselves against the risk of unemployment.

The IFP looks at how much the average individual, on the average wage, receives when they become unemployed in each country. Figures are adjusted to take account of the different costs of goods and services in each country through using ‘purchasing power parity’. This figure is divided by the size of the labour force. Each country’s performance is ranked relative to each other to produce the State Protection Index.

The IFP also measures ‘private protection’ by looking at two key ways people protect themselves: through taking our accident and health insurance to pay for loss of income when they are ill and pecuniary loss insurance in case of loss of income. The accident and health figure is adjusted to account for how large the private health system is in that country. This gives us a better indication of how much protection people want against unemployment, irrespective of the size of the private sector in the health system. This figure is divided by the size of the labour force. This produces the Private Protection Index.

The £2.24bn annual saving is based on increasing the current take-up rate of personal income protection from its current level of 11 per cent to 27 per cent (a similar level to the US). An annual rebate of £100 for those who take out personal welfare protection would cost approximately £860m in lost NI revenues.  If the current disability rate of 5 per cent stays at the same level, the annual saving for the state is £3bn.

The UK labour force is currently made up of 32m people.  There are 3.6m active income protection policies.  There are currently around 2.61m recipients of state incapacity benefits with around 684,000 new claims each year.  The total cost to the taxpayer is around £16,987bn a year – 1/5 of the five-year spending reduction target of the Coalition Government.

Evidence shows that currently employee absence cost employers an average of £517 per employee per year in lost production, SSP and extra overtime costs. Interventions earlier on – before a person has even left work – could radically reduce these costs and ensure that unwell or disabled individuals get the help they need to go on working sooner.

Media requests

Max Wind-Cowie is available for interview and comment.

Beatrice Karol Burks
Beatrice.burks@demos.co.uk
020 7367 6325
079 2947 4938