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The Contributory Principle

There is a debate continuing around the social security system on whether those who have paid in more should get back more when they need it.

The inverse of this is that those who haven’t paid national contributions get nothing – including those who have not had the opportunity to pay anything. This is where Mr Cameron’s recent proposals for under-25s come in: under-25s have paid in less, therefore should get less leeway.

Often this debate is framed around people not getting ‘something for nothing’ – benefits when they haven’t paid in – or ‘nothing for something’ – not getting more in return because they have paid in more compared to others. There are references to Sir Beveridge and his 1942 report, and to ‘restoring the contributory principle.’

There are two crucial factors missing from this debate.

The first is relatively simple, but I am disappointed that no political person that I am aware of has raised it. Perhaps the relevant MPs haven’t read Beveridge’s report. Or perhaps they have arguments against Beveridge’s proposal that I haven’t thought of.

The first factor is this: why are higher paid people paying more NI per year than lower paid people?

Beveridge proposed that the new compulsory social insurance “should provide a flat rate of benefit, irrespective of earnings, in return for a flat contribution for all.” If the government wanted to have larger receipts from wealthier people, Beveridge recommended that this be done through raising Income Tax for these people, not NI.

Currently, people on higher incomes pay more NI, but don’t get more in return. This feels unfair, because usually if you pay more for your insurance policy it is so that you will get more out if you need it. What doesn’t happen however is that you get a bigger pay out just because you’ve lived ten more years than someone else and therefore bought ten more successive insurance policies.

So why is this system being advocated for NI? Why is it not instead advocated either that those who have paid in more per year get more out when they need it, or that we return to flat rate contributions to match our current flat rate benefits?

The second factor is in regard to the length of time over which contributions have been paid. This links in to the above point where people have been arguing that those who have paid in for longer should get more out.

However this overlooks a crucial fact: if someone is 60 they have had over 40 years in which to pay in, but if someone is 18 or 21 and just left education they haven’t had the opportunity to pay in. Why should the young be penalised for not having lived long enough yet?

This becomes even more odd when one considers that our 18 year old has 50 or more years to come in which to pay in. Surely it is in the government’s interest to assist that person into a secure job, even a career – emphatically not a low-pay/no-pay cycle – to ensure that NI contributions are paid in for as many of the coming years as possible? In contrast our 60 yr-old currently has 5 years left, so supporting him, even if successful in getting him back into work, is not going to bring much future return.

I am not suggesting that those who are younger get more support than those who are older, on the basis of future contributions. That would be to misread the point of what I am saying. After all, 40 years of actual contributions is more certain than 50 years of potential contributions.

The point I am making is that to refuse help to young people because they haven’t yet paid in is to overlook the fact that helping them now is paid for by their future contributions, and consequently is entirely appropriate.

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