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The current system of contributory benefits is a ‘sham’ and ‘ripe for reform,’ a report by the Centre of Social Justice (CSJ) has found.

The benefit is supposedly paid out in line with contributions, but any link between the two has been eroded by governments of all colours over past decades. An individual who has contributed via National Insurance payments for 25 years could receive less than a 25 year old who has worked on and off since their teens. 

Any saver who has accrued £16,000 or more is automatically ruled out from receiving the benefit regardless of how much they have contributed into the system because they have crossed the arbitrary savings threshold.

The administration of the redundant scheme also adds a significant extra burden to the tax payer. The CSJ report estimates that scrapping contributory benefits could save the government over £2.7 billion over five years.

The Centre for Social Justice is calling for contributory benefits to be replaced a social insurance model run by the private sector. 

The proposed social insurance scheme could be run in a similar way to auto-enrolment pensions, where workers would automatically contribute a small monthly fee. In return they would receive over double the amount the existing contributory benefit system pays out. 

A worker with a salary of £27,000 a year and savings under £16,000 would currently receive £404 a month – 16 per cent of take home pay – from contributory benefits.

Under the proposed social insurance scheme, the same worker would receive £900 a month, which is 40 per cent of take home pay, regardless of their savings.

The new social insurance model would help people who earn enough to be disqualified for Universal Credit, but who struggle to make ends meet in the event of sickness or sudden unemployment. 

Andy Cook, Executive Director of the Centre for Social Justice, commented: “Contributory benefits in their current form are a sham; they do not serve the function they claim to. They do not reward those who have paid the most into the system.

“Now the Government has the opportunity to scrap them altogether and replace them with a new model that directly links contribution to benefit.

“Hard working families need a system that provides a financial buffer against sickness or a sudden income shock. A simple social insurance model would allow them to save for a rainy day without compromising their self-reliance and financial independence.

“By being facilitated not administered by state, a social insurance system would allow those in need to be helped in a way that is sustainable for the long term.” 

View report: http://www.centreforsocialjustice.org.uk/core/wp-content/uploads/2016/12/161021-Contributory-Benefits-Roundtable-Report-Website.pdf

Notes to editors

For media enquiries contact: Beatrice Timpson (07803 726 977, beatrice@mippr.co.uk) or Nick Wood (07889 617003, nick@mippr.co.uk) at Media Intelligence Partners. 

About the Centre for Social Justice

The Centre for Social Justice (CSJ) exists to put social justice at the heart of British politics. Advancing social justice is about identifying the root causes of poverty and providing a way out to those it affects. Established in 2004, the CSJ is an independent think tank that studies the root causes of poverty and aims to address them through practical policy interventions. 

The CSJ’s vision is to give people in the UK who are experiencing the worst multiple disadvantage and injustice, every possible opportunity to reach their full potential. The principles behind this vision are: 

• A mandate for the whole of the UK, not just isolated areas;
• A focus on the bottom 20 per cent and those who, without external intervention, may never fulfil their potential;
• An agenda that is evidence-based, targeted towards long-term solutions, and harnesses the best grass-roots practice;
• A commitment to providing a route out of poverty via a hand-up, not a hand-out;
• A commitment to the transformation of lives, not just alleviating symptoms.