Labour policy: take from the young to give to the old

On the basis of the “contributory principle”, Labour proposes taking Job Seekers’ Allowance (JSA) from unemployed young people to make more generous provision for the old. David Kingman considers the intergenerational implications of such a policyUnemployed young person

At the recent Labour party conference in Brighton, the shadow Work and Pensions Secretary Liam Byrne announced a pledge to reform the rules governing job seekers’ allowance (JSA) if Labour wins the next general election in 2015. Unfortunately, his proposal could have grave implications for younger jobseekers, as this article will explain.

How has he proposed to change JSA?

At present, anyone who is under state pension age can qualify for contributory JSA (worth £56.80 per week) as long as they are looking for work (meaning they attend appointments at a job centre at least once every two weeks) and they have made at least two years’ worth of national insurance contributions. On this basis, everyone is treated the same, regardless of how much they have personally contributed in national insurance contributions over their lifetime.

However, what Liam Byrne announced he wanted to do is to change this so that, in future, older unemployed people who have paid in national insurance contributions for longer would qualify for higher benefits. To do this, he would restrict the level of benefits which is available to younger jobseekers by raising the number of years worth of contributions which someone needs to have made in order to qualify for contributory JSA in the first place – in effect, he proposes to directly transfer benefit spending from younger jobseekers to older ones.

Why does Labour think this would be a good idea?

Looking at Labour’s plan, it’s hard not to react cynically. This reform is clearly intended to appeal to the hugely important “grey vote” who all the parties want to try and attract, as levels of voter turnout among the older age cohorts are so much higher than for younger members of the electorate.

It’s easy to spot another type of political calculation at work behind this proposal, too: Labour is desperate to avoid being seen as fiscally profligate, so any policies they propose have to be revenue-neutral. In this context, their welfare reforms will have to involve a lot of reallocating existing resources between different groups of claimants, as pledging to either raise taxes or government borrowing has become a political no-go area for the party.

To give the Labour party their due, Liam Byrne is probably also being sincere when he argues that he feels the present system is unfair to older jobseekers. His speech to the conference contained the following statement in which he outlined how he thinks they are treated unjustly:

“If you are in your 50s, you have been in work all your life. You will have paid in more than £100,000 of national insurance but if you fall out of work, you are going to be out of work longer than almost anyone else and you are at a bigger risk of becoming disabled than anyone else… And what is there for you? Frankly, bugger all. That is wrong. We have
said that those who have worked the most, cared the most and served the
most, when you get to your 50s there should be a more generous benefits
system for you…”

He is also drawing attention to a genuine problem, which is the so-called “silver scrapheap.” According to the latest ONS figures, people aged 50 to 64 have the second-highest rate of unemployment in the UK, after those aged 16 to 24. If you are unlucky enough to have been made redundant during your 50s, especially because of ill-health, then it can be extremely difficult to find a way back in to the labour force, so this plan attempts to make it a little easier for older jobseekers to deal with being made redundant.

Will it work?

However, there are a number of good reasons why Labour’s plan is unlikely to be effective. Firstly, it will be difficult to implement in practical terms because of how JSA works. “Contributory” JSA, based on your national insurance contributions record, is only one of the two forms which this benefit takes; there is also a separate benefit called “income-based” JSA, which you can claim if you are looking for a job while you are unemployed or have very low earnings and you have less than £16,000 in savings. Depriving young jobseekers of contributory JSA will probably simply push more of them onto income-based JSA, so this change could even end up costing the government more once its been implemented.

Then there is the bigger argument that this policy is unfair to younger jobseekers, who will have had no control over their national insurance contributions if they’ve never worked or have been unemployed for a long time. It’s difficult to avoid the feeling that this policy pits the interests of one generation against another directly, when in reality the real problems lie with the labour market and with an education system which fails to either equip enough young people with the skills they need to succeed, or enables older adults to retrain if their skills have got out of date.

Addressing these problems will require a much more ambitious degree of reform than simply fiddling with a small part of the benefits system in order to appeal to older voters, but that is what we need if we actually want to fix the twin evils of youth unemployment and the “silver scrapheap” once and for all.