Fabian Society calls for ‘British employment insurance’

21 March 2023

Strong public support for plan to stop incomes plummeting during sickness, maternity and unemployment

A major new report from the Fabian Society, supported by the abrdn Financial Fairness Trust, calls for the next government to introduce a comprehensive new system of ‘British employment insurance’.

The scheme would provide generous paid leave and temporary benefits when people have to stop working, with payments based on recent earnings. A YouGov poll reveals high public support for the proposals.

The report condemns current payments for sick leave, maternity, caring and unemployment as an inadequate patchwork which successive governments have neglected for decades.

Existing payments give people a tiny fraction of their usual incomes, plunging them into financial hardship and uncertainty if they need to take time out of work. After years of decline, jobseeker’s allowance is worth 12 per cent of average earnings, statutory sick pay 16 per cent and maternity payments 25 per cent.

In preference to fragmented reform on many fronts the Fabian Society proposes a comprehensive new system of ‘British employment insurance’ that would end today’s devastating cliff-edge when people cannot work.

The proposals for earnings-related payments take inspiration from the Covid-19 furlough scheme and are modelled on Canada’s system of employment insurance. The UK has provided earnings-related support in the past (from the mid-1960s to the early-1980s) and it is the norm in most rich countries.

Under the new system people who stop working would be paid half their current or recent earnings for a fixed time (with a cap on the amount payable to high earners). In the case of sickness, the plan goes further and recommends paying 80 per cent of earnings in sick pay.

Public support for ‘employment insurance’

A Fabian Society YouGov poll of UK adults indicates that these would be popular reforms.  79 per cent of people expressing a view (ie excluding those who said ‘don’t know) support the introduction of the overall proposal for employment insurance.

The percentage of people who support individual policies is (also excluding 'don’t knows’):

87 per cent      One week of paid carer’s leave per year

87 per cent      Increasing minimum redundancy payments

77 per cent      Increasing minimum sick pay to 80 per cent of earnings

73 per cent      Carers who stop work receiving half their previous earnings for 12 months

63 per cent      Maternity pay rising to half a mother’s usual earnings for 12 months

61 per cent      People who lose their job receiving half their previous earnings for six months

The plan in detail

The key proposals include:

* A major overhaul of maternity and parental leave. Parents on maternity or parental leave would receive half their usual earnings for up to 12 months. Six months would be reserved for mothers, and each parent could then receive up to 6 months parental leave. For the first time self-employed fathers would be able to claim paid paternity leave and parental leave.

* Sick leave paid at 80 per cent of earnings from day one to week 28 of absence. Workers would be paid from day one of all sickness absences (to prevent the transmission of communicable diseases like Covid) and would receive four-fifths of their pay. This proposal is affordable for business because most large employers already provide sick pay above the minimum level set out in law. Small businesses would receive new money to help meet this cost and free occupational health services.

* New support when people leave work. People who stop working would receive half their previous earnings (up to a capped amount) for six months in the case of unemployment, and 12 months in the case of sickness. The new payments would provide a cushion to help people find suitable work or focus on their health without immediate financial pressure. Minimum redundancy payments would also be increased in the first significant reform of the statutory redundancy scheme since 1965.

* A new deal for working carers. Carers of disabled and older people would receive one week of paid leave each year that could be taken flexibly to balance work and care. They would also have a right to a further 3 weeks a year of unpaid leave. Alternatively, if carers need to stop work, they would be able to claim half their earnings for up to 12 months through a new carer’s insurance benefit. People in this situation would also be able to ask large employers to hold open their jobs for a year.

* A new deal for the self-employed. Self-employed workers would be able to claim unemployment benefit for the first time, as well as having new rights to paid paternity leave and parental leave. A new sickness insurance payment would provide them with an equivalent to sick pay. The report also calls for paid time-off for training for the self-employed.

British employment insurance would benefit business by helping firms retain and recruit more workers. Overall employers would also gain financially from the new measures, because there would be new state subsidies to cover the higher costs of maternity pay (and sick pay in the case of SMEs).

If the whole plan was introduced at once the cost for the government would be £9bn (4 per cent of total social security spending). However, the report proposes that the scheme is phased in over a decade for both financial and operational reasons and it shows how the scheme could be paid for by modest new payroll deductions.

To begin the process of change the report lists a series of measures that could be implemented immediately at either zero cost or low cost to the government (eg £10m to £60m per year).

Andrew Harrop, General Secretary of the Fabian Society and co-author of the report said:

“The money people get if they need to stop working is totally inadequate. Paid leave schemes and out-of-work benefits punish mothers taking time off for maternity, workers on sick leave and those who have recently lost their job. As a result, individuals fall off a financial cliff-edge and employers find it harder to retain and recruit the workers they need.

“We should not tinker around the edges of this broken system. The response to Covid showed that the British state can be agile and generous when it comes to supporting people who are temporarily out of work. The next government should learn this lesson and build a comprehensive system of British Employment Insurance.”

Paul Nowak, general secretary of the TUC, said:

"Everyone deserves decent support to get back on their feet when they can't work. An earnings replacement system could play a valuable role in achieving that as part of a modern social security system and give greater stability to the lives and wellbeing of working people and their families. It's time to build on the success of the furlough scheme which saved millions of jobs and livelihoods and deliver a modern social security system for the UK."

Mubin Haq, CEO of the Financial Fairness Trust said:

”We have a patchwork of threadbare support when people cannot work. On various league tables of wealthy economies, the UK lies near the bottom on sick pay, unemployment support and maternity pay. Over time this support has deteriorated to such an extent that major reforms are long overdue. Change is supported by the public who back a series of measures to help those out of work. Not only could this help prevent hardship but also help employers to keep their workforce.”

Read the report