The UK’s recession safety net: not as stingy as you thought

Scrooge

UK unemployment benefits are known for being pretty stingy.  I’ve previously mentioned how they have fallen behind living standards since the early 1980s, and put us towards the bottom end of the OECD table of generosity.

But there’s a problem in just looking at ‘unemployment benefits’ – we now increasingly rely on a complex array of different means-tested benefits, particularly housing benefits, to act as the safety net against unemployment.  And there’s no use at looking at a hypothetical safety net without knowing how well it serves the people who are have actually been hit by the recession.

Which is where a timely new study by Francesco Figari and colleagues comes in. (The full paper is available here). They use a tax-benefit model of the EU in 2008 assuming full take-up of benefits, and focus on the types of people that became unemployed between early 2008 and late 2009.  (‘Type of people’ here being defined by sex, age and education level).  For these people, they then look at how their post-unemployment income from benefits would compare to their pre-unemployment income.

Headline figures

The headline figure is that on average, these people would be living on 60-63% of their pre-unemployment income if they have become unemployed.  This is unsurprisingly lower for people who were the only earner in the household, whose income goes down to 51-54% of what it was originally.  This is all much higher than unemployment benefit on their own as a share of average earnings – which aside from being a slightly different comparison, nevertheless shows how much of a difference the other benefits make.

Means-testing, poverty, and international comparisons

Three bits of this are particularly interesting though.

1. Most of the new unemployed don’t become poor – only around 30% fall below the poverty line.  For sole earners, though, the reverse is true – about two-thirds of sole earners who become unemployed fall below the poverty line, as shown below.  (JSA-C is the contribution-based version of Jobseekers Allowance, which isn’t means-tested for around 6 months).

2. As this suggests, the major form of security for people losing their job is their partner’s income (and other income in the household) – which is why sole earners are in such a bad position. This isn’t exactly surprising. But it’s a welcome reminder of the need to consider household dynamics in looking at the impact of unemployment.

3. The UK doesn’t do well when looking internationally.  If we strip out the role of other people’s earnings in the household, then the comparison looks like the Figure below – Figari et al restricting themselves to Belgium (BE), Italy (IT), Lithuania (LT) and Spain (ES) for these comparisons. Reflecting the heavily means-tested nature of most of the benefits, the UK is reasonably generous for the very poorest, but offers the worst protection to middle and high earners compared to Spain, Italy and Belgium. Instead, the UK runs along the bottom, tied with the Lithuanian welfare state.

So: the take-home story is that the UK isn’t as stingy as it appears when you just look at (the dwindling) unemployment benefits. But this isn’t to say that the benefits are high (as anyone living on them will tell you) – and it’s heavily means-tested, offering less than comparable countries to the middle classes. Which still makes it pretty stingy – even before the benefit cuts bite over the coming years.