(c) crown copyright
Catalogue Reference:CAB/129/118
Image Reference:0018
Printed for the Cabinet.
C P . (64) 118
16th June,
June 1964
Copy N o . 8 4
1964
CABINET
E A R N I N G S - R E L A T E D S H O R T - T E R M BENEFITS
MEMORANDUM BY THE CHANCELLOR O F THE EXCHEQUER
T h e Pensions and National Insurance Committee discussed on 11th June
(I.N.P. (64) 6th Meeting, Minute 2) whether we should extend the principle of
relating benefit to earnings to the short-term benefits of the national insurance
scheme and, if so, whether we should publish the proposals in a White Paper (a
draft of which as circulated to the Committee is attached). The majority of the
Committee are in favour of doing both these things and I am, as Chairman,
circulating this paper setting out the arguments. A minority of the Committee,
consisting of the Chief Secretary to the Treasury and myself, take a different view
and we shall be circulating a separate paper.
2. We should bear in mind the background to our considerations. N . E . D . C .
in their r e p o r t " Conditions Favourable to Faster Growth " nearly eighteen months
ago referred to the advantages of earnings-related unemployment benefit and
suggested that there was much to be said for a comprehensive earnings-related
scheme. The question of financial provision for redundancy was considered last
summer by the Minister of Labour's National Joint Advisory Council. Both the
British Employers' Confederation (B.E.C.) and the Trades Union Congress (T.U.C.)
came out in favour of earnings-related unemployment benefit. In subsequent
discussion both bodies have reiterated their support for this development. The
T.U.C. has said that earnings-relation should be extended to sickness benefit. There
has been a series of detailed discussions at official level which have shown that a
scheme is workable. There have been reports and discussions in the Press which
have built up an expectation of Government action. We cannot defer making some
statement of our views for much longer and it will not be easy in the present climate
of opinion to say that we have decided to do nothing.
3. There is a growing feeling that the Beveridge concept of flat-rate minimum
benefits for all is out-moded. The rapid growth of earnings in recent years makes
it possible for the ordinary worker to pay more for better financial protection.
Although proportionately the rise in benefits has more than kept pace with the rise
in earnings, the absolute difference between standard benefits and average earnings
has been widening considerably, so that the drop in income for the worker who loses
his job or falls sick is serious. Prosperity has encouraged people to take on continuing
commitments of various kinds. T h e onset of unemployment or sickness and the
sudden drop from average earnings of £16 a week or so to £3 7s. 6d. a week for a
single person and £5 9s. for a married man can cause real difficulties which we ought
to mitigate. People no longer consider hardship in absolute terms; they assess it
relatively to earnings and commitments, and argue that provision against the
cessation of earnings should be related to those earnings. We took a first step in this
direction with the introduction of the graduated pensions scheme in 1961. That
scheme is now well-established and it would seem a wholly natural and sensible
development, in tune with modern thinking, that we should take the next step and
extend earnings-relation to the short-term benefits. Many overseas countries have
already adopted it.
4475
4. There are powerful special reasons why unemployment benefit should be
related to earnings. They a r e :
(1) We cannot have modernisation and faster economic growth without an
increase in movement of workers not only within industries but from
one industry to another. Earnings-related unemployment benefit is a
necessary reinforcement of our other measures to deal with growth
and its consequences, such as our training and re-training programme
and regional development policies.
(2) Unless the worker can have reasonable protection against a sharp fall in
income in these circumstances, he will resist strongly and will oppose
every change that threatens jobs. Restrictive practices will continue
to flourish.
(3) Equally, employers will be less reluctant to discharge redundant employees
if better financial provision is made for them through the national
insurance scheme. Overmanning is serious and may be widespread,
and anything that will assist employers to eliminate it is of crucial
importance.
(4) It will improve the atmosphere of industrial relations. This again will
help to secure workers' co-operation in raising productivity.
(5) High unemployment benefit will act automatically as an anti-cyclical
measure, helping to sustain purchasing power in those areas, and at
those times, where this is desirable to encourage employment.
5. These economic arguments do not apply to sickness benefit, but the
financial needs of many sick people are no less than those of the unemployed.
The case on both economic and social grounds for introducing earnings-related
short-term benefits and providing more adequate protection against a sudden fall
in income in unemployment and sickness seems to be a compelling one.
6. If we improve the provision for the early months of unemployment and
sickness, we should similarly improve the provision for the early months of
widowhood. Improvements in parallel on all three fronts would mean a sensible
and attractive advance in our social provision.
Publication of a White Paper
7. If the Cabinet decide, as the majority of the Committee recommend,
in favour of this extension of earnings-related benefits, we must also decide whether
we should publish our proposals in a White Paper. The majority view in the
Committee is that we should. The Ministers who take this view argue as follows.
There has been considerable interest in, and publicity for, our consultations with
the B.E.C. and T.U.C. These have been going on in one form or another for the
best part of a year and we should be subject to criticism if we could not show
that we had carefully worked out the essentials of our proposals. A White Paper
would be the natural way to do this, and can be expected to be widely welcomed.
Pressure for too early legislation would have to be resisted, but this could be done
on the grounds that there were still important details to be worked out and
discussed with interested parties. Early publication might involve some
embarrassment with the B.E.C. and the T.U.C., since our consultations with
them are still continuing. But this is not thought to be serious. Thus, if the Cabinet
decide in favour of the scheme recommended by the majority of the Committee,
it would also be the strongly-held view of the majority that the scheme should be
published in a White Paper before the Recess.
R. M.
Treasury Chambers,
S.W.L
15th June, 1964.
APPENDIX
DRAFT
WHITE
PAPER
F u r t h e r development of the National Insurance Scheme
S h o r t - t e r m "benefits r e l a t e d t o e a r n i n g s
Introduction
1o
" P r o v i s i o n for Old Age - t h e Future Development of the N a t i o n a l I n s u r a n c e
Scheme" (Cmnd. 538) was*issued in October 1958-
I t contained the Government's
views on t h e future development of n a t i o n a l insurance r e t i r e m e n t pension
provisions.
The Government then decided t h a t the e x i s t i n g f l a t - r a t e
should he preserved as the b a s i c p r o v i s i o n for old age hut t h a t i t s
system
limitations
i n meeting the developing needs of the community i n an expanding economy pointed
t o the need for a supplementary system of graduated c o n t r i b u t i o n s and r e t i r e m e n t
p e n s i o n s rexa ted to e a r n i n g s .
The Government t h e r e f o r e put forward p r o p o s a l s t o
t h i s e f f e c t and these were l a t e r embodied in the National Insurance Act
2.
1959­
This was a major new development f o r n a t i o n a l i n s u r a n c e i n t h i s c o u n t r y .
The n a t i o n a l insurance scheme had h i t h e r t o been based on the p r i n c i p l e of
u n i v e r s a l compulsory i n s u r a n c e g i v i n g f l a t - r a t e b e n e f i t s a t s t a n d a r d r a t e s for
a l l t h e c o n t i n g e n c i e s covered i n r e t u r n for f l a t - r a t e c o n t r i b u t i o n s . The graduated
p e n s i o n s scheme introduced a new p r i n c i p l e by r e l a t i n g c o n t r i b u t i o n s and b e n e f i t s
t o individual earnings.
New methods of assessing,, c a l c u l a t i n g and r e c o r d i n g
c o n t r i b u t i o n s had t o be devised.
3-
The inauguration of t h e new scheme posed many problems f o r employers and t h e
Government Departments concerned.
I t was n e v e r t h e l e s s launched s u c c e s s f u l l y
A p r i l 1961 and has run smoothly s i n c e t h e n .
in
With t h i s important new development
i n n a t i o n a l insurance now f i r m l y e s t a b l i s h e d in the pensions f i e l d ,
the
Government has been c o n s i d e r i n g whether an element of e a r n i n g s - r e l a t i o n should be
i n t r o d u c e d i n t o the p r e s e n t p r o v i s i o n s f o r unemployment and s i c k n e s s and, i f s o ,
how t h i s might best Tse done.
Such a development would be n a t u r a l , but t h e p a t t e r n
s e t f o r pensions would need c o n s i d e r a b l e m o d i f i c a t i o n s before i t could be applied
t o the quite different
c o n t i n g e n c i e s of unemployment and s i c k n e s s . Recent
d i s c u s s i o n of these problems has been given an impetus by the s e a r c h f o r b e t t e r
p r o v i s i o n f o r t r a n s i t i o n a l unemployment i n c o n d i t i o n s of r a p i d t e c h n o l o g i c a l
change.
The Government welcomes the i n t e r e s t shown i n t h i s t o p i c . In order t o
h e l p f u r t h e r d i s c u s s i o n , i t has decided t o s e t out i t s views on t h e main
c o n s i d e r a t i o n s involved ( P a r t I ) and i t s p r o p o s a l s for a system of graduated
supplements t o unemployment b e n e f i t ,
(Part
1
s i c k n e s s b e n e f i t and widow s allowance
II).
PART
I
The c o n s i d e r a t i o n s involved in extending g r a d u a t i o n t o
unemployment and s i c k n e s s b e n e f i t s
The p r e s e n t p r o v i s i o n s
The n a t i o n a l scheme
4.
9he n a t i o n a l i n s u r a n c e scheme p r o v i d e s a uniform, f l a t - r a t e b e n e f i t
1.
to
compensate f o r l o s s of e a r n i n g s during unemployment or sickness., The value of
t h i s b e n e f i t has been s u b s t a n t i a l l y i n c r e a s e d in r e a l terms s i n c e i t was
Introduced.
The r a t e of "benefit i s now £3 7s- 6d. a week f o r a s i n g l e man and
s
£5 9 - a week for a married couple.
To t h i s are added payments f o r c h i l d r e n .
One of t h e f e a t u r e s of t h e p r e s e n t arrangements i s the s u b s t a n t i a l weight given
t o family r e s p o n s i b i l i t i e s .
A married couple with two c h i l d r e n t h u s r e c e i v e
£7 I s . a week5 e x c l u d i n g family allowances5 with four c h i l d r e n £8 5s* a week,
excluding family allowances.
Unemployment and s i c k n e s s b e n e f i t s are not subject
to income t a x and those r e c e i v i n g them are not l i a b l e for n a t i o n a l insurance
contributions.
For men with f a m i l i e s and with wages below average
the p r e s e n t b e n e f i t s a l r e a d y amount to a s u b s t a n t i a l p r o p o r t i o n of t h e i r t a k e ­
home pay.
But people w i t h high e a r n i n g s and with no or few dependants can s u f f e r
a s u b s t a n t i a l drop in income i f t h e y l o s e t h e i r jobs or f a l l
sick.
Employers' schemes
5"
N a t i o n a l i n s u r a n c e b e n e f i t s a r e often supplemented by payments under
employers' schemes.
Payments t o employees who have become redundant are u s u a l l y
lump sums r e l a t e d t o l e n g t h of s e r v i c e ; t h e i r main purpose i s t o give r e c o g n i t i o n
f o r long s e r v i c e and some compensation for the d i s t u r b a n c e and u n c e r t a i n t y which
t h e l o s s of employment e n t a i l s .
I t i s e s t i m a t e d t h a t about 4^ m i l l i o n workers
( i n c l u d i n g If- m i l l i o n in the n a t i o n a l i s e d i n d u s t r i e s ) are covered by schemes which
i n c l u d e severance payments.
Many o t h e r employers make s e v e r a n c e payments
even though they do not have a formal scheme.
Except f o r t h e n a t i o n a l i s e d
i n d u s t r i e s , however, employers' arrangements r a r e l y i n c l u d e p r o v i s i o n f o r
continued weekly payments while the worker i s unemployed.
I t i s here t h a t
n a t i o n a l i n s u r a n c e must p l a y a predominant p a r t .
6.
Employers' s i c k pay schemes, on the other hand, cover a l a r g e p r o p o r t i o n of
t h e employed p o p u l a t i o n , p a r t i c u l a r l y d u r i n g t h e e a r l y weeks of s i c k n e s s . An
e n q u i r y i n t o the i n c i d e n c e of i n c a p a c i t y for work has provided d e t a i l e d
i n f o r m a t i o n about the e x t e n t and n a t u r e of such schemes.
In view of i t s
importance t h i s information [ h a s been p u b l i s h e d ] [ w i l l s h o r t l y be p u b l i s h e d ]
as a separate r e p o r t .
I t shows t h a t i n 1961 56.6 p e r cent of male employees
and 59"5 p e r cent of female employees i n s u r e d for s i c k n e s s b e n e f i t were covered
by employers" s i c k pay arrangements.
There a r e wide v a r i a t i o n s in the e x t e n t of
cover i n d i f f e r e n t o c c u p a t i o n s and i n d u s t r i e s .
also varies considerably.
The n a t u r e of the cover provided
The amounts range from f u l l pay ( o r f u l l pay l e s s
n a t i o n a l i n s u r a n c e b e n e f i t ) down t o q u i t e small sums; and the d u r a t i o n of
payment may be long o r s h o r t .
The Government a t t a c h e s g r e a t importance
t o the p a r t t h a t employers' s i c k pay schemes can p l a y , and a Committee
o f the M i n i s t e r of L a b o u r ' s N a t i o n a l J o i n t Advisory Council was appointed
2.
l a s t autumn to study information about employers' s i c k pay arrangements
and t o c o n s i d e r t h e expansion and improvement of t h e s e arrangements by
^voluntary means.
This Committee's r e p o r t w i l l s h o r t l y he considered by
t h e N a t i o n a l J o i n t Advisory Council.
P r i v a t e insurance
7"
The Government r e c o g n i s e s the v a l u a b l e p a r t heing played by i n d i v i d u a l
v o l u n t a r y insurance a g a i n s t s i c k n e s s , e i t h e r through the f r i e n d l y
society
movement or through p r i v a t e i n s u r a n c e companies, and b e l i e v e s t h e r e w i l l
always be a p l a c e for supplementary p r o v i s i o n of t h i s
sort.
The need f o r graduated b e n e f i t s
80
The p r i n c i p l e embodied i n the graduated pension scheme i s t h a t r e t i r e m e n t
p e n s i o n s should be more c l o s e l y r e l a t e d t o i n d i v i d u a l earnings and so h e l p t o
r e f l e c t t h e s t a n d a r d of l i v i n g t h e worker has a t t a i n e d i n h i s working l i f e .
By t h e same token i t may be argued t h a t the worker on higher wages who can
a f f o r d t o pay h i g h e r c o n t r i b u t i o n s than are p r a c t i c a b l e under the
scheme
flat-rate
should be able to r e c e i v e a r a t e of b e n e f i t more in keeping with
h i s normal standard of l i v i n g when h i s e a r n i n g s are t e m p o r a r i l y i n t e r r u p t e d
by s i c k n e s s or unemployment..
Workers today g e n e r a l l y enjoy h i g h e r wages than
ever b e f o r e .
Many a r e buying t h e i r homes and have taken on o t h e r c o n t i n u i n g
commitments.
A sudden i l l n e s s Or l o s s of a job f r e q u e n t l y causes a s u b s t a n t i a
drop i n income which makes t h i n g s d i f f i c u l t
he can g e t hack to work.
for the worker u n t i l such time as
The Government c o n s i d e r s t h a t , with i n c r e a s i n g
p r o s p e r i t y , the p r i n c i p l e of r e l a t i n g n a t i o n a l i n s u r a n c e b e n e f i t s t o e a r n i n g s
should be extended t o s h o r t - t e r m b e n e f i t s .
Unemployment b e n e f i t
9*
Although unemployment b e n e f i t and s i c k n e s s b e n e f i t e x i s t t o serve the
same s o c i a l purpose and a r e c l o s e l y l i n k e d a t p r e s e n t
7
i n t e r e s t has been
c o n c e n t r a t e d r e c e n t l y on the e x t e n s i o n of e a r n i n g s - r e l a t i o n t o unemployment
benefit.
I f we are to s u s t a i n a high r a t e of economic expansion and t o
a c h i e v e a modernised and c o m p e t i t i v e economy, we must be ready to redeploy
r e s o u r c e s t o meet t e c h n o l o g i c a l change and changes i n demand f o r our
products.
We must expect g r e a t e r movement of workpeople not only w i t h i n
i n d u s t r i e s but from one i n d u s t r y t o a n o t h e r .
must be safeguarded.
But t h e i n t e r e s t s of workers
Unless t h i s i s done, r e s i s t a n c e t o change and t o
m o b i l i t y may a c t as a brake on the whole p r o c e s s .
The Government i s meeting
t h e s i t u a t i o n in a number of ways - by encouraging and h e l p i n g i n d u s t r y
t o plan i t s manpower r e q u i r e m e n t s ahead so t h a t unnecessary redundancies
can he avoided and t o make p l a n s in advance to d e a l with p o s s i b l e
r e d u n d a n c i e s i n c o n s u l t a t i o n with r e p r e s e n t a t i v e s of t h e workers who may be
a f f e c t e d ? by g r e a t l y expanding t h e f a c i l i t i e s for r e - t r a i n i n g redundant
workers5 and by l e g i s l a t i o n which has p r e s c r i b e d minimum r i g h t s t o n o t i c e
b e f o r e employment i s t e r m i n a t e d .
But i t i s also important t o make r e a s o n a b l e
f i n a n c i a l p r o v i s i o n for those who l o s e t h e i r j o b s .
3.
10.
P r o v i s i o n f o r redundancy has been c o n s i d e r e d by t h e N a t i o n a l
A d v i s o r y C o u n c i l of t h e M i n i s t e r o f L a b o u r .
Joint
A s p e c i a l sub-committee
t h a t t h e r e w e r e t w o m a i n p r o b l e m s - t h e a l l e v i a t i o n of h a r d s h i p i f
agreed
redundancy
i s f o l l o w e d by unemployment and c o m p e n s a t i o n t o a r e d u n d a n t w o r k e r f o r
l o s s of a j o b a f t e r l o n g s e r v i c e .
I n t h e Government's view,
unemployment b e n e f i t would r e l i e v e t h e f i n a n c i a l
the
earnings-related
h a r d s h i p f o r t h o s e who c a n n o t
f i n d a new j o b i m m e d i a t e l y and would t h e r e b y h e l p t o romove t h e f e a r of
redundancy.
I n r e c e n t y e a r s t h e r e h a s b e e n a c o n s i d e r a b l e e x t e n s i o n of a r r a n g e m e n t s
for
c o m p e n s a t i n g r e d u n d a n t w o r k e r s t h r o u g h s e v e r a n c e payments by e m p l o y e r s .
Government h a s e n c o u r a g e d t h i s and a t t a c h e s g r e a t i m p o r t a n c e t o t h e
d e v e l o p m e n t of s u c h
Sickness
11.
fit
The
further
arrangements.
benefit
T h e s e s p e c i a l a r g u m e n t s i n f a v o u r of e a r n i n g s - r e l a t e d unemployment b e n e ­
have no r e l e v a n c e t o s i c k n e s s b e n e f i t ,
b u t t h e f i n a n c i a l n e e d s of many
s i c k p e o p l e a r e no l e s s t h a n t h o s e of t h e u n e m p l o y e d .
A substantial
proportion
of them a r e n o t c o v e r e d by any e m p l o y e r ' s s i c k pay scheme 5 some of t h o s e who
a r e c o v e r e d can o n l y b e n e f i t
a f t e r a p e r i o d of q u a l i f y i n g s e r v i c e , a n d
c a n e x p e c t o n l y s m a l l amounts f o r s h o r t p e r i o d s .
I n some o c c u p a t i o n s ,
l a s t i n g f o r more t h a n a s h o r t t i m e may mean t h e l o s s o f a j o b .
t h e s e o c c u p a t i o n s and t h o s e who f a l l
double misfortune
12.
others
illness
Workers i n
sick after losing t h e i r jobs suffer
of b e i n g o u t of a j o b a s w e l l a s
the
sick.
The Government h a s t h e r e f o r e d e c i d e d t h a t t h e s t r o n g s o c i a l r e a s o n s
extending graduation to sickness benefit
a s w e l l a s t o unemployment
for
benefit
s h o u l d be r e c o g n i s e d and t h a t t h e r e s h o u l d b e g r a d u a t e d s u p p l e m e n t s t o b o t h
benefits,
earnings.
payable for a limited period,
r e l a t e d to the claimant's
I n t h i s way t h e w o r k e r who l o s e s h i s j o b o r i s i l l
a d d i t i o n a l p r o t e c t i o n against too severe a drop in income.
previous
can be g i v e n
The same n e e d d o e s
n o t however a r i s e w i t h s h o r t s p e l l s o f f work and i t i s n o t t h e r e f o r e
t o pay g r a d u a t e d s u p p l e m e n t s t o w o r k e r s on s h o r t t i m e o r d u r i n g t h e
s t a g e s of a s p e l l of unemployment o r s i c k n e s s .
proposed
early
There are compelling r e a s o n s ,
e x p l a i n e d l a t e r i n p a r a g r a p h 22,why t h e i n i t i a l p e r i o d f o r w h i c h no s u p p l e m e n t
would b e p a i d w i t h s i c k n e s s b e n e f i t must b e l o n g e r t h a n w i t h unemployment
benefit.
Widow's a l l o w a n c e
13-
A s i m i l a r n e e d f o r a d d i t i o n a l p r o t e c t i o n a g a i n s t a s u d d e n d r o p i n income
a r i s e s d u r i n g t h e e a r l y months of widowhood.
T h i s i s t h e p u r p o s e of
p r e s e n t w i d o w ' s a l l o w a n c e , w h i c h i s p a i d t o widows f o r t h e f i r s t
after their h u s b a n d d e a t h
flat-rate benefits.
thirteen
a t a l e v e l h i g h e r t h a n t h e s t a n d a r d r a t e of
The G o v e r n m e n t ' s p o l i c y h a s a l w a y s b e e n t o g i v e
t i a l t r e a t m e n t t o widows, and i t
has t h e r e f o r e decided t h a t g r a d u a t e d
ments r e l a t e d t o t h e husband's p r e v i o u s e a r n i n g s should a l s o be paid
widow's allowance.
the
.
?;eeks
other
preferen­
supple­
with
CONFIDENTIAL
The self-employed
14*
'
88
When t h e graduated pensions scheme was i n t r o d u c e d , i t was decided t h a t
i t should not apply t o t h e s e l f - e m p l o y e d .
People who a r e self-employed do not
d^ave t h e advantage of an e m p l o y e r ' s c o n t r i b u t i o n to supplement t h e i r own and
t h e r e would be g r e a t p r a c t i c a l d i f f i c u l t i e s
i n a s s e s s i n g and c o l l e c t i n g
graduated c o n t r i b u t i o n s from them.
The self-employed a r e i n any case not
e l i g i b l e f o r unemployment b e n e f i t .
For t h e s e reasons they a r e not included i n
t h e Government's p r o p o s a l s f o r extending graduated c o n t r i b u t i o n s and b e n e f i t s .
Scope of the Government's p r o p o s a l s
15.
The Government's p r o p o s a l s which follow i n P a r t I I d e a l w i t h t h e e s s e n t i a l
f e a t u r e s of a system of e a r n i n g s - r e l a t e d s h o r t - t e r m b e n e f i t s .
A g r e a t d e a l of
d e t a i l e d work remains to be done before t h e s e p r o p o s a l s can be put i n t o
effect
and t h e consequences f o r o t h e r b e n e f i t s ? n o t a b l y the b e n e f i t s payable under t h e
I n d u s t r i a l I n j u r i e s scheme f o r people i n j u r e d a t work, need f u r t h e r
PART
study.
II
The Government's p r o p o s a l s
16.
The Government proposes t h a t graduated supplements, r e l a t e d t o p r e v i o u s
e a r n i n g s , should be paid w i t h f l a t - r a t e unemployment and s i c k n e s s b e n e f i t s ,
and with widow's allowance, i n o r d e r t o provide a d d i t i o n a l p r o t e c t i o n d u r i n g t h e
difficult
income.
period of adjustment t h a t follows a severe and unexpected drop i n
The f o l l o w i n g p a r a g r a p h s show what t h e e a r n i n g s - r e l a t e d b e n e f i t s
would b e , on t h e b a s i s of t h e p r e s e n t r a t e s of f l a t - r a t e
The amount of t h e graduated
17"
benefit.
supplements
The e x t r a graduated c o n t r i b u t i o n s r e q u i r e d t o f i n a n c e t h e supplements
would be c o l l e c t e d on t h e same band of e a r n i n g s as f o r graduated pensions ( a t
p r e s e n t £9 t o £18 a week).
band.
The supplements would be r e l a t e d t o e a r n i n g s i n t h a t
I t would be wrong f o r t h e second £9 of e a r n i n g s to a t t r a c t more b e n e f i t
t h a n t h e f i r s t £9.
T h e r e f o r e , on p r e s e n t f i g u r e s , t h e supplement f o r t h o s e
e a r n i n g £18 a week o r more should not be more than £3 7s- 6d.
.0n t h i s b a s i s
t h e maximum r a t e of b e n e f i t for a s i n g l e man would be twiae as much as t h e
present f l a t - r a t e b e n e f i t .
For t h o s e e a r n i n g between £9 and £18 t h e supplement
would be t h r e e - e i g h t h s of t h e i r e a r n i n g s over £9*
t h e maximum supplement b e a r s t o £9*
T h i s i s t h e p r o p o r t i o n which
People e a r n i n g £9 a week or l e s s do not
pay graduated c o n t r i b u t i o n s and would not be e l i g i b l e for"any supplement.
But
a s i n g l e man w i t h e a r n i n g s bet\?een £9 and £18 would not r e c e i v e a h i g h e r p r o ­
p o r t i o n of h i s g r o s s e a r n i n g s t h a n t h e man on £9 a week.
For t h o s e e a r n i n g more
t h a n £18 a week the p r o p o r t i o n of g r o s s e a r n i n g s would be s m a l l e r .
18.
The following t a b l e s i l l u s t r a t e t h e b e n e f i t s which would be payable a t
different
l e v e l s of e a r n i n g s and f o r d i f f e r e n t f a m i l i e s under t h e Government's
p r o p o s a l s f o r graduated supplements amounting to t h r e e - e i g h t h s of g r o s s e a r n i n g s
between £9 and £18 a week.
/Table 1
5.
table 1
The amount of
Gross earnings of
£10 a week
Present
flat rate
benefit
Graduated
supple­
ment
benefit
Graduated
supple­
ment
Total
benefit
Gross earnings of
£18 a week
Gross earnings of
£16 a week
Orsss earning s of
£12 a week
Craduated
supple­
ment
Total
benefit
Total
benefit
Grad­
uated
supple­
ment
Total
benefit
e.
d.
£
s.
d.
£
s . d.
£ s.
d. £
s.
d.
£
s . d.
£
s* d. £
6
7
6
3
15
0
1
2
6
4
10
0
2
12
6
6
0
0
3
7
6
6 15
0
0
7
6
5
16
6
1
2
6
6
11
6
2
12
6
8
1 6
3
7
6
8 16
6
7
8
1 2 6
8
3
6
2 12
6
9 13 6
3 7 6
10 8
6
1
9 7
6
2 12
6
10 17 6
3 7 6
11 12
6
£
s . d.
S i n g l e man
3
7
Married man
5
9
Married man
with 2
children
7
1
0
7 6
Married man
with 4
children
8
5
0
. 7 6
6
8 12 6
26
s.
d.
Table 2
Gross earnings of
£12 a week
Gross earnings of
£10 a week
Takehome
pay plus
family
allowances
(1)
£
s.
Takehome
pay''plus
family
allowances
Total (2) as si
benefit! percent-!
plus age of i
family
(D !
allowances
(2)
d. £
(1)
s.d.
£
JGross earnings of
£16 a week
Total (2) as aj TskeBenefit p e r c e n t - hom.e
plus
age of
pay p l u s
family
(1)
family
allowallowances
ances
(2)
!
(D
s . d. £
£
s . d.j
I Gross earnings of
I
£18 a week
Total (2) as a!
Total (2)
b e n e f i t percent
home benefit as a
plus
of (1)
pay plus plus
per *
family
family family cent­
ellowallowp l l o w - age
of
ances
nnces
anoes
(2)
(2)
(1)
(1)
s . d. £ s . d
£
s . d. £ s. A;
i
S i n g l e man
8
10
1
3 15
I
Married man
Married man
with 2
children
Married man
with 4
children
9
2
6
9 18 10
a I 43.9
5 16 6
10
12 8
11
U
0
6 11
6 61.8
4 5 . 3 1 2 12
2
13 10 1
6 0 0
47.6
13 18
8 1 & 59.8
3 6 15 0! 4 8 . 5
14 16 2
8 16 6! 5 9 . 6
I
I 63.8
9 15 3
7 16 6 ' 8 0 . 2
10 15 3 10 0 6
I 93.1
4 10
;
J12
13
13 4
8
116
10 15 6
73.5
j 15 2 8 10 1 6
j 85.1 j16 9
7
12 5 6
66.6
74.5
"Gross pay l e s s n a t i o n a l Insurance c o n t r i b u t i o n and Income t a x , If any.
6.
16 11 10 1.0 .16
18
7
9
13
61
65.2
0 6 70.
19.
T h e s e t a b l e s show t h a t a s i n g l e man w i t h e a r n i n g s u p t o £ 1 8 a week
^vould r e c e i v e b e n e f i t a m o u n t i n g t o a l m o s t h a l f h i s t a k e - h o n e p a y .
For the
m a r r i e d man t h e p r o p o r t i o n would b e w e l l o v e r h a l f ; f o r a n a n w i t h a f a m i l y
i t w o u l d b e t w o - t h i r d s o r more a c c o r d i n g t o t h e number o f
20.
children.
The p u r p o s e of t h e s u p p l e m e n t w i l l be t o c u s h i o n t h e i m p a c t of
u n e m p l o y m e n t , s i c k n e s s a n d widowhood by p r o v i d i n g h i g h e r b e n e f i t s d u r i n g t h e
p e r i o d f o l l o w i n g a sudden drop i n income.
has always e x i s t e d f o r t h i s purpose,
The p r e s e n t w i d o w ' s a l l o w a n c e ,
l a s t s for three nonths.
F o r t h e unemployed
t h e p e r i o d s h o u l d b e l o n g enough t o t i d e them o v e r t h e i n i t i a l
difficulties
o f w h a t may be a m a j o r u p h e a v a l i n t h e i r l i v e s b u t n o t so l o n g a s t o
courage m o b i l i t y .
I t can be a r g u e d t h a t t h r e e months i s a s u i t a b l e
for these purposes.
which
dis­
period
The Government c o n s i d e r s t h a t t h e r e i s m e r i t i n
adopting
t h e same p e r i o d f o r a l l t h r e e c o n t i n g e n c i e s b u t t h a t a r a t h e r l o n g e r p e r i o d
t h a n t h r e e months i s n e e d e d .
to a l l three benefits
I t has concluded t h a t t h e graduated
s h o u l d be p a i d f o r s i x m o n t h s .
supplement
T h i s means t h a t
the
f l a t - r a t e widow's allowance w i l l a l s o run f o r six months.
21,
The q u e s t i o n o f when payment of g r a d u a t e d b e n e f i t
involves different
considerations for different
supplements should begin
benefits.
Account must be
t a k e n of t h e amount of work r e q u i r e d t o d e t e r m i n e t h e r a t e o f
p a y a b l e , and t h e number of c l a i m s i n v o l v e d .
In a l l cases,
c l a i m a n t ' s p r e v i o u s e a r n i n g s would b e n e c e s s a r y .
i n e v i t a b l y t a k e t i m e and i t would b e d i f f i c u l t
t h e supplements i n t o payment.
supplement
e n q u i r i e s about a
These e n q u i r i e s would
t o a v o i d some d e l a y i n
putting
F o r unemployment and s i c k n e s s b e n e f i t s ,
the
s h e e r w e i g h t of numbers w o u l d make i t i m p r a c t i c a b l e t o p a y g r a d u a t e d
s u p p l e m e n t s f o r s h o r t p e r i o d s ; t o t r y t o do so would p l a c e an i m p o s s i b l e
b u r d e n on e m p l o y e r s a n d t h e l o c a l o f f i c e s
of t h e d e p a r t m e n t s c o n c e r n e d .
Government t h e r e f o r e p r o p o s e s t h a t g r a d u a t e d unemployment b e n e f i t
supplements
s h o u l d n o t b e p a i d t o w o r k e r s on s h o r t t i m e o r f o r t h e f i r s t week o f a
of
22.
The
spell
unemployment.
I n t h e c a s e of s i c k n e s s b e n e f i t ,
t h e payment o f g r a d u a t e d
would p r e s e n t a n even g r e a t e r a d m i n i s t r a t i v e problem.
o v e r n i n e m i l l i o n new c l a i m s t o s i c k n e s s b e n e f i t ,
m i l l i o n unemployment b e n e f i t
for r e l a t i v e l y short periods.
claims.
supplements
Each y e a r t h e r e
oonpared with about
T h e b u l k of s i c k n e s s b e n e f i t
are
three
claims
are
O n e - q u a r t e r a r e f o r s p e l l s of a week o r l e s s ,
o v e r h a l f two w e e k s o r l e s s , a n d o v e r t h r e e - q u a r t e r s f o u r weeks o r l e s s .
Dealing with a l l these claims i s not easy, p a r t i c u l a r l y during the winter
m o n t h s when t h e i n f l u x of new c l a i m s i s a t i t s h i g h e s t a n d t h e s t a f f
w i t h them i s i t s e l f
o f t e n d e p l e t e d by s i c k n e s s .
At s u c h t i m e s i t i s
to
deal
difficult
enough t o m a i n t a i n f l a t - r a t e b e n e f i t p a y m e n t s ; i t w o u l d b e o u t o f t h e
question
t o e x p e c t l a r g e n u m b e r s of g r a d u a t e d s u p p l e m e n t s t o be p a i d a s w e l l .
Neither
l o c a l o f f i c e s n o r e m p l o y e r s , who w o u l d h a v e t o a s s i s t i n e s t a b l i s h i n g
details
of p r e v i o u s e a r n i n g s , w o u l d be a b l e t o c o p e w i t h t h e e x t r a w o r k .
Another
i m p o r t a n t c o n s i d e r a t i o n d i s t i n g u i s h i n g s i c k n e s s b e n e f i t from unemployment
b e n e f i t i s t h a t w h i l e a n unemployed p e r s o n i s a v a i l a b l e i n p e r s o n t o
provide
d e t a i l s of h i s p r e v i o u s employment, a sick person i s n o t .
He i s u s u a l l y
confined t o bed, o r a t l e a s t t o h i s hone, and i n h i s case a l l e n q u i r i e s about
h i s earnings would have t o be conducted by p o s t .
t h e process more p r o t r a c t e d .
This would i n e v i t a b l y make
I n view of a l l t h e s e f a c t o r s , and t h e e x t r a cover
a l r e a d y provided i n many cases by employers' s i c k pay schemes during t h e e a r l y
weeks of s i c k n e s s , t h e Government proposes t h a t graduated s i c k n e s s b e n e f i t
supplements should not be paid f o r s p e l l s which l a s t f o r four weeks o r l e s s ,
nor f o r t h e f i r s t f o u r weeks of longer s p e l l s .
Only i n t h i s way would t h e t a s k
of paying graduated supplements to s i c k n e s s b e n e f i t become manageable.
23.
There i s no need f o r a w a i t i n g p e r i o d f o r t h e g r a d u a t e d supplements t o
widow's a l l o w a n c e .
These supplements would be p a i d as q u i c k l y as p o s s i b l e ivith
e f f e c t from t h e d a t e of t h e husband's death and they would go on f o r t h e p e r i o d
of s i x months now proposed f o r t h i s allowance.
The e a r n i n g s to which graduated supplements would be r e l a t e d
24.
The supplement would be r e l a t e d , as n e a r l y as p o s s i b l e , to the e a r n i n g s
which were reasonably r e p r e s e n t a t i v e of what was normal o r average f o r t h e
claimant ( o r , i n t h e case of t h e widow's allowance, t h e c l a i m a n t ' s h u s b a n d ) .
I t would t h e r e f o r e be necessary to average e a r n i n g s over a p e r i o d .
The
Government c o n s i d e r s t h a t t h i s p e r i o d must be t h e same f o r everyone, long enough
to even out f l u c t u a t i o n s , s e a s o n a l o r o t h e r w i s e , i n e a r n i n g s , and one f o r which
d e t a i l s of e a r n i n g s could be r e a d i l y and r e l i a b l y a s c e r t a i n e d ,
25.
S t u d i e s made so f a r suggest t h a t t h e p e r i o d which would most n e a r l y
a l l t h e s e requirements would be t h e l a s t tax y e a r .
satisfy
The Government t h e r e f o r e
proposes t h a t graduated supplements should be c a l c u l a t e d by reference to gross
earnings ( o r t h e graduated c o n t r i b u t i o n s p a i d on such e a r n i n g s ) for P.A.Y.E.
purposes i n t h e l a s t t a x y e a r b e f o r e the d a t e of c l a i m .
doing t h i s needs f u r t h e r s t u d y .
The p r e c i s e method of
One of t h e problems t o be considered would be
t h e t r e a t m e n t of absences d u r i n g t h e y e a r due t o unemployment or s i c k n e s s .
Cost and c o n t r i b u t i o n s
26.
The Government proposes to finance t h e new s h o r t - t e r m b e n e f i t s , which
would c o s t about £50 m i l l i o n a y e a r , by adding -5- p e r cent t o t h e g r a d u a t e d
c o n t r i b u t i o n s (now 1^ p e r c e n t ) which employers and employees are a l r e a d y
paying on e a r n i n g s between £9 and £18 a week.
For t h o s e earning £18 a week o r
more t h i s would r e p r e s e n t l i d . a week each from employee and employer; and
correspondingly l e s s f o r t h o s e with lower e a r n i n g s .
27.
Employees who a r e c o n t r a c t e d out of t h e p a r t of t h e scheme p r o v i d i n g
graduated r e t i r e m e n t pensions do not at p r e s e n t pay graduated c o n t r i b u t i o n s .
The Government b e l i e v e s i t would be wrong t o withhold t h e new b e n e f i t s from
c o n t r a c t e d - o u t employees.
A way must t h e r e f o r e be found t o c o l l e c t t h e
a p p r o p r i a t e graduated c o n t r i b u t i o n s from them and t h e i r employers.
I t i s not
p r a c t i c a b l e t o c o l l e c t two s e p a r a t e r a t e s of graduated c o n t r i b u t i o n s , one from
ordinary c o n t r i b u t o r s , counting both f o r r e t i r e m e n t pension and. s h o r t - t e r m
b e n e f i t s ; and t h e o t h e r from c o n t r a c t e d - o u t c o n t r i b u t o r s , counting f o r
t e m b e n e f i t s only.
Among o t h e r d i f f i c u l t i e s ,
CONFIDENTIAL
8.
short­
t h e r e would be no means of
CONFIDENTIAL
e n s u r i n g t h a t t h e two k i n d s of c o n t r i b u t i o n s were kept a b s o l u t e l y d i s t i n c t a t
^ 1 stages.
Any f a i l u r e to d i s t i n g u i s h between t h e n would i n e v i t a b l y l e a d to
e r r o r s i n t h e payment of pensions and o t h e r graduated, b e n e f i t s .
28.
This means t h a t t h e c o n t r a c t e d - o u t would have t o pay t h e sane graduated
c o n t r i b u t i o n s as o t h e r c o n t r i b u t o r s .
Some rearrangement of t h e p r o v i s i o n f o r
c o n t r a c t i n g - o u t would be necessary, but t h e s t u d i e s t h a t have a l r e a d y been
made have convinced t h e Government t h a t t h e changes necessary f o r t h i s
purpose could be i n t r o d u c e d without d e p a r t i n g from t h e e s s e n t i a l p r i n c i p l e
t h a t t h e employer undertakes t o provide c e r t a i n b e n e f i t s through a r e c o g n i s e d
o c c u p a t i o n a l pension scheme i n p l a c e of p a r t of t h e n a t i o n a l i n s u r a n c e r e t i r e ­
ment p e n s i o n .
No change would be n e c e s s a r y i n t h e amount of o c c u p a t i o n a l
pension which enployers must provide i n o r d e r to c o n t r a c t o u t , and e x i s t i n g
c e r t i f i c a t e s of n o n - p a r t i c i p a t i o n would remain v a l i d without e n p l o y e r s having
t o modify t h e i r o c c u p a t i o n a l pension schemes.
The Government proposes t o d i s ­
cuss the d e t a i l e d a p p l i c a t i o n of t h e s e r e v i s e d arrangements f o r c o n t r a c t i n g - o u t
w i t h r e p r e s e n t a t i v e s of employers, employees and o t h e r s concerned w i t h
occupational pensions.
9,