Plan for ‘personalised welfare’ system

Moving to a system of 'personalised welfare' is the answer to the problems facing the benefits system for working-age people, says a new report from the Social Market Foundation think tank. The report highlights what it sees as the 'crisis of legitimacy' confronting the existing system, and the shortcomings of the orthodox approach to social security.

Key points

  • Public support for the existing benefits system is at historic lows. Collectivism has receded in many areas of life since the 1942 Beveridge report, and it would now be politically impossible to rebuild support for the principle of a state-led contributory benefits systems that lay behind it.
  • But although collective forms of support have receded, many lifetime risks (and their costs) have increased. Society has a 'profound interest' in seeing that these risks are managed well – both to maximise people’s potential and to prevent the burden of them falling on the state. Although the state itself may no longer seek to provide people with collective insurance against events such as unemployment, it can and should facilitate the better private management of the associated costs.
  • The report's central proposal is that the state should harness the power of social connections to support people better financially, while also improving the incentives they face – a so-called 'Facebook welfare' system of lifecycle accounts.
  • From age 16, all citizens would open a lifecycle account, nominating three guarantors – friends or family with positive lifecycle account balances. People (and their employers) would contribute a proportion of their gross income into the account each month (with tax relief) – with compulsory and voluntary elements.
  • On becoming unemployed, lifecycle account holders would automatically draw a monthly income from their account for up to six months, sufficient to top up entitlement to universal credit to the point where total household income was 80 per cent of previous gross income for a family with children and 70 per cent for a childless individual or couple.
  • Money drawn from the account would be repaid through subsequent earnings. Failure to do so over a given period would result in guarantors having to repay a proportion of the outstanding amount.

Source: Ian Mulheirn (with Jeff Masters), Beveridge Rebooted: Social Security for a Networked Age, Social Market Foundation
LinksReport | SMF press release

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Publication date: 
Aug 15 2013