This briefing note looks at the lessons we have learnt about the UK’s welfare system over the course of the Covid-19 crisis so far, and what those lessons might mean for its future direction.
The £111 billion spent so far on supporting incomes during the pandemic should remind us of the importance of welfare systems. It also provides an opportunity to ask what we want of such a system, and whether it is currently achieving this. Considerations include: protecting public health and family incomes, providing earnings insurance, and support for those with additional costs.
Much recent debate about reform has focussed on specific details, or has become unrealistic. It is time to consider broader reforms, while remaining grounded in the real needs of society. This report therefore draws out the lessons for the welfare state from both how the existing system performed and also the changes that were swiftly made to it. It also offers examples of practical policy changes that draw on the experience of the past year. The Foundation will build on this work over the next two years as part of the Resolution Foundation’s Economy 2030 Inquiry, undertaken with the LSE and funded by the Nuffield Foundation.
Key findings
- Lesson 1: Earnings-replacement is a fundamental role of the social security system. Although the pandemic was an extreme event, unemployment in normal times can be just as random or unpredictable, and there is an ongoing economic justification for providing greater earnings-replacement in the event of unemployment.
- Lesson 2: Our system of sick pay leaves workers with too much of a financial imperative to carry on working. The pandemic has shown that adequate sick pay – in terms of coverage and generosity – should be seen as a collective benefit, and a crucial part of our public health policy.
- Lesson 3: Treating employees and self-employed differently is hard to justify, and getting ever-harder to implement in our modern labour market. We should seek to reduce the remaining differences in the social security and personal tax systems.
- Lesson 4: The level of support provided by the pre-crisis safety net was insufficient given the needs of low-income families, and particularly for younger adults.
- Lesson 5: The safety net needs to reflect the variation in costs faced by different households. This principle has been undermined in recent years, and was not followed during the crisis with a flat-rate £20 uplift for all families on Universal Credit.
- Lesson 6: Delivering real-time, multi-billion pound programmes is possible but will inevitably result in design flaws that leave the state exposed to greater risk of fraud, and have too many rough edges.
- Lesson 7: Our system for supporting those with long-term health conditions may soon be under much greater strain if long Covid leads to people withdrawing from the labour market.
Drawing on these lessons, we set out three possible directions for reform: providing a greater degree of earnings-replacement; ensuring a more generous system overall; and doing more to support those with additional costs. The suggested policies are intended to be illustrative examples, rather than concrete proposals, and are not intended to be mutually-exclusive – indeed, progress could be made on all three fronts
Putting the lessons from the crisis into practice will mean devoting more money to the social security system. Now is the right time to start talking about these and other choices, and whether we are willing to pay for them.
