date: 11 November 2008

embargo: 00:01hrs Wednesday 12 November 2008

Pre Budget Report should boost benefits for unemployed

The newly unemployed face a bigger cut in their living standards in this recession than those who lost their jobs under the previous government, the TUC says today (Wednesday) in a call to the Government to increase unemployment benefits in next week's Pre-Budget Report.

The TUC believes that increasing Job Seeker's Allowance (JSA) would prevent hardship and provide an effective boost to the economy alongside tax cuts.

JSA for a newly unemployed single person over 25 is just £60.50 a week. The gap between earnings and JSA has increased over the last 30 years because JSA has increased each year in line with price inflation, not earnings. This means that the newly unemployed will face a bigger drop in their income than in the recessions of the 1980s and 1990s.

If JSA had been increased in line with earnings over the last thirty years, the rate for a single person over twenty-five would now be more than £100 a week. Increasing it in line with earnings since 1997 would give it a value of £75 a week - £15 more than its current level. This means that the gap between benefit and earnings has grown by 20 per cent since the Government came to power.

An increase in JSA allowances of at least £15 would give real help to the newly unemployed, who face a rapid descent into poverty, and provide a fiscal stimulus the economy desperately needs, the TUC has told the government. A recent study by the US Congressional Budget Office showed that extending unemployment insurance benefits and increasing food stamps was the most cost-effective way to stimulate the economy.

Current JSA levels are not enough to live on - recent research into minimum income standards has shown that a single working age adult needs an income of at least £153 a week 'in order to have the opportunities and choices necessary to participate in society'.

The TUC is also calling for an end to JSA rules - introduced in 1996 - that require people laid off from a job to which they will be able to return to when conditions improve, to either give up this job after 13 weeks to search for a new position or lose their benefit.

TUC General Secretary Brendan Barber said: 'Putting more money into ordinary people's pockets must be part of the response to the recession. Tax cuts have a role, but there is an even stronger case for boosting unemployment benefit. It is the quickest way to stimulate the economy and protects the newly unemployed from a catastrophic fall in their income.

'Job Seekers Allowance is less than £10 a day. Going from a typical wage down to this poverty income will be a terrible shock for people losing their job through no fault of their own.

'The gap between benefit and earnings has grown because the Government wants to look tough on scroungers. We have never agreed with this approach as it hits those making every effort to find work as hard as anyone who is abusing the system. But with unemployment now climbing every month, there can be no case that poverty level benefits keep unemployment down.

'The Government can pay for this by closing the tax loopholes the super-rich use to avoid paying a fair share of tax. There will be some justice in making many of those who did spectacularly well from the unsustainable asset bubble that has now burst contribute to helping their victims.'

The TUC is also calling on the Chancellor to improve redundancy pay and allow the newly unemployed to keep more redundancy pay before it is liable to tax.

Minimum redundancy pay is worked out by a formula based on how long you have been employed and your weekly pay. But weekly pay above £330 a week is not counted, even though more than half (53 per cent) the working population earns over £330 a week. The current limit is just 73 per cent of the average pay of £452.

To make matters worse, workers have no right to any redundancy pay until they have been working for their employer for two years and roughly one worker in three is excluded by this rule (30.6 per cent, according to the Labour Force Survey).

When redundancy pay was introduced in 1965 the limit was set at £40 a week - more than twice the average wage in those days. If it had been uprated in line with prices it would now be over £500. If it had been uprated in line with earnings it would be over £1,000.

Statutory redundancy pay (SRP) under £30,000 is not taxed; above that it is liable to income tax at your highest rate. This tax limit was raised from £5,000 to £10,000 in 1978, to £25,000 in 1981 and £30,000 in 1988, but it has remained at that level for the past twenty years. To have the same value now as it had in 1988, SRP would need to be raised to £50,000.

The TUC believes that the statutory weekly limit for calculating redundancy pay should raised to £500 and the service needed to qualify should be cut to one year. The limit above which SRP is taxed should be raised to £50,000.

NOTES TO EDITORS:

- US research quoted in If, When, How: a primer on fiscal stimulus, Hamilton Project, 2008, Douglas W Elmendorf and Jason Furman, p 17.

- A Minimum Income Standard for Britain: what people think, Jonathan Bradshaw, Sue Middleton, Abigail Davis, Nina Oldfield, Noel Smith, Linda Cusworth and Julie Williams, JRF, 2008.

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Contacts:

Media enquiries:
Rob Holdsworth T: 020 7467 1372 M: 07717 531150 E: rholdsworth@tuc.org.uk

Press release (1,000 words) issued 12 Nov 2008