Earlier this year Chancellor Rishi Sunak announced a new system of wage insurance for employees affected by the pandemic unlike anything seen in the UK before © Simon Walker/HM Treasury

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The writer is chair of the Resolution Foundation

The significance of choices made in a crisis often get overlooked. During the first coronavirus lockdown the UK government scrambled to invent a generous system of wage insurance for employees and income-protection for the self-employed. It could have sent all households an emergency flat-rate benefit payment or targeted those in most need. Instead, the bulk of the new support offered was linked to past earnings.

In this century’s darkest hour the government turned for inspiration not to William Beveridge but to Otto von Bismarck — the respective intellectual godfathers of the contrasting British and continental-style welfare states.

This represents a major rupture with the UK’s postwar policy settlement. Protecting existing jobs and wages (and the economic continuity and social cohesion this secured) trumped other considerations that, in less extreme circumstances, would have prevailed.

Choices made during the trauma of a pandemic are not a good guide to the future. Only the naive would expect the furlough scheme to presage a pivot towards continental social thinking among the British governing class. Equally, only uninquiring minds would be closed to the possibility that the response has something to teach us about 21st-century social protection.

The pandemic will leave the UK poorer as a nation and make most things harder in public policy. But the social flux generated may also open up space for political leaders willing to do the hard work of mobilising support for new approaches to social protection.

History can help us here. The UK’s modern welfare model may have been founded on Beveridge’s commitment to flat-rate contributions in return for guaranteed flat-rate benefits but it has been shaped ever since by the rise of means-testing. Whether motivated by a desire for spending restraint on the right, or redistribution on the left, the result is that the distinction between contributory “insurance-based” and “means-tested” benefits has collapsed. 

Sporadic attempts have been made to introduce earnings-related social insurance. Indeed, calls for the rejuvenation of the “contributory principle” are almost as old as the principle itself. Harold Macmillan’s Conservative government first dabbled with the idea of an earnings-related state pension in the early 1960s, before Labour’s Harold Wilson championed a more full-blooded version, alongside wage-linked top ups to unemployment, sickness and widow’s benefits. All fell by the wayside, helping forge today’s received wisdom that such initiatives are futile.

Yet, history also gives us examples of successful attempts to improve the welfare state that have enjoyed broad-based political support. The introduction of statutory maternity pay in 1975 — now 90 per cent of earnings for six weeks, followed, for most, by a longer stretch of a lower flat-rate payment — is part of the furniture of society. No mainstream politician would dare suggest this approach to earnings-protection represents an aberrant departure from parsimonious British tradition.

The pension system, too, is an example of welfare innovation that will stand the test of time. Reforms over the past 15 years have resulted in a settlement that is structurally sound, if under-generous. A low but rising universal flat-rate pension twinned with a mandated workplace system — backed by contributions from employers, government and workers — provides a solid base.

Effective welfare states must be able to improvise. This often means knitting a blend of approaches to balance different objectives — like addressing acute need while cushioning a wide-spectrum of society against risks over their lives. A willingness to build and experiment may disappoint those who favour totalising arguments about the future of welfare, and would depart from the prevailing mindset that views cuts as the answer to all problems.

But it is needed. Sickness pay has been reduced to an ugly runt of a benefit that forces the ill to work, while acting as an arbitrary tax on employers. In real terms, unemployment benefit is set to fall to the level it was at 30 years ago. The social care system privatises, rather than pools, the risk of a family being hit by catastrophic care costs. Support for the self-employed is threadbare. The cumulative effect is more risk being shifted on to those least able to bear it. 

This year has served as a brutal reminder of something both the conservative Bismarck and liberal Beveridge understood: societies need effective ways of sharing the burden to be resilient in a crisis. It’s a lesson we should put to use when improving our welfare state for a post-pandemic world.

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