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A Better Recovery

Learning the lessons of the corona crisis to create a stronger, fairer economy
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Research and reports
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Chapter 3: A real safety net

Even before coronavirus crisis hit the UK, it was clear that our safety net was broken. Its ragged holes have been newly exposed by the large numbers now falling through the net as their income disappears in the wake of the virus.

The UK’s safety net has been dramatically weakened after years of underinvestment, with thirty-four billion of cuts made to social security since 2010. Over a decade of austerity, including benefit caps and freezes, a punitive sanctions regime and the introduction of the five-week wait for universal credit, has pushed working families into debt and poverty. Last year, the UN Special Rapporteur on extreme poverty published a highly critical report on the UK,1 setting out how years of austerity policies have ‘systematically and starkly eroded’ our social safety net, with ‘tragic social consequences’.

The impact of slashing social security is all too evident. The latest official poverty figures from 2018/19 show the number of people living in poverty at a record high of 14.5 million, including 4.2 million children.2 Unsecured debt per household hit a new record high of £14,500 in 2019, and debt charities have reported being busier than ever. This has caused a dramatic increase in food insecurity and left people turning to food banks to feed their families. Data from the Trussell Trust shows that over 1.5 million three-day emergency food supplies were given to people in crisis in 2018/19 - an increase of 73 per cent over five years. The top three reasons given for referral to a food bank were ‘income not covering essential costs’, ‘benefit delays’ and ‘benefit changes’.

During the pandemic, as people lose their jobs or have fallen between the gaps in the job protection schemes, they have been advised to turn to the welfare safety net, leading to a surge in universal credit claims. Between the start of the lockdown on 16 March and 5 May the DWP received 2.5 million individual declarations to universal credit [1]. Although not all of these will be claims for unemployment, as universal credit also supports those in work who have experienced a fall in income, this is at least five times higher than new claims from the same period last year.

This new group of claimants are now experiencing the inadequacy of benefit levels: if you become unemployed, the basic rate of universal credit is around a sixth of average weekly pay (17 per cent)6. The inability of our weakened welfare system to cushion the fall for these new claimants can be seen in the soaring demand on food banks during the last two weeks of March: overall food parcels increased by 81 per cent compared to the same period in 2019 and for children there was a 122 per cent rise.

The Work and Pensions Committee has carried out a survey to find out about people’s experiences of the benefit system during the coronavirus outbreak and found 75 per cent of those claiming universal credit felt the benefit wouldn’t stretch to cover their bills.

At £95.85 a week, statutory sick pay is worth less than a fifth of weekly earnings. The Health Secretary, Matt Hancock, admitted on Question Time that he could not live on this amount - yet the government expects others, with far less savings than most government ministers, to do so. Two million people are not entitled even to this, because their earnings are too low to qualify. [2]

The inadequacy of our safety net has become visible for all to see. While the government claim there has been an emergency boost of £7bn to welfare as the pandemic unravelled, this is only a fifth of the cuts made to social security since 2010.

We need to transform and revitalise our safety net. During the life cycle there will be times when many people need to rely on the social security system: social security is a social good, providing economic security for all. The cuts in funding for this essential safety net have reflected a political commitment to austerity, rather than economic necessity. What is needed, now more urgently than ever, is a political commitment to protecting the vulnerable as an essential part of rebuilding our economy. The costs of adequately funding the social security budget is small when compared to the costs of not acting to reduce poverty, which includes both the damage of weakened demand on the economy and the deep social costs of inequality. We want and need an economy where no one is left to fall between the cracks.

Making our social security system fit for purpose requires fundamental changes, including scrapping universal credit. The immediate priority, however, is for the government to come up with an urgent plan to provide financial support and security for those who need it most.

Immediate steps to fix our social safety net

Universal credit and other benefits must be substantially reformed, by:

  • raising the basic level of universal credit and legacy benefits, including jobs seekers allowance and employment and support allowance, to at least 80 per cent of the national living wage (£260 per week)
  • ending the five-week wait for first payment of universal credit by converting emergency payment loans to grants
  • removing the savings rules in universal credit to allow more people to access it
  • significantly increasing child benefit payments and removing the two-child limit within universal credit and working tax credit
  • ensuring no-one loses out on any increases in social security by removing the arbitrary benefit cap. In addition, no one on legacy benefits should lose the protection of the managed transition to Universal Credit as part of this change
  • suspending the conditionality requirements within the universal credit system and the harsh and unfair sanctions regime
  • introducing a wider package of support for households, by increasing the hardship fund delivered by local authorities – a hardship fund should not just be there for the current crisis; government should put in place a fund that provides a permanent source of grants to support those facing hardship.

Sick pay must cover the basic costs of living

  • Statutory sick pay must be sufficient to cover basic living costs. Weekly payments must rise from £95.85 to the equivalent of a week’s pay at the Real Living Wage – around £320 a week.
  • The lower earnings limit for qualification for sick pay must be removed to ensure everyone can access it, no matter how much they earn.

Government must create a Jobs Guarantee Scheme

We know that some people will unfortunately lose their jobs as a result of the pandemic. While many workers face the risk of unemployment, the risk is particularly high in sectors such as hospitality, entertainment and non-food retail which rely heavily on footfall and which cannot operate safely in the immediate future.

These sectors are particularly likely to employ young people, and analysis by the Institute for Fiscal Studies shows that employees under 25 were about two and a half times more likely as other workers to work in a sector that is currently shut down.

Many of these young workers will have come into the labour market at a time of high youth unemployment; a 25-year-old now would have turned 18 in 2013, at a time when the number of unemployed young people hit over one million. It’s vital this group don’t face another catastrophic hit to their employment prospects.

We have set out our proposals for a Jobs Guarantee scheme that would help prevent the pandemic being followed by a major unemployment crisis and prolonged recession.

  • Government should provide funding to offer a new jobs guarantee. This scheme would provide a minimum six months job with accredited training, paid at least the real living wage, or the union negotiated rate for the job.
  • We believe that the government should aim to offer the job guarantee scheme to as many people as possible who face long-term unemployment. But in seeking to prioritise it should guarantee jobs to:
    • every worker under 25 and under who has been unemployed for three or more months
    • workers aged over 25 who have been unemployed for six months or more.
  • · The scheme should be funded by national government, but delivered at regional and local level, with inputs from local leaders, unions and business, working alongside Jobcentre Plus. A new Corona Reconstruction and Recovery panel should be set up in each region to work to deliver guaranteed jobs in the local area that:
    • are additional
    • provide a community, public benefit and/or help to decarbonise the economy
    • meet local labour market needs
    • promote and protect equality.

Security in retirement – protecting the state pension

Older people already have been hit particularly hard by the pandemic. To make sure they do not have to shoulder the financial cost as well, the government must:

Maintain the triple lock. The triple lock – which increases state pensions each year by the highest of wage inflation, price inflation measured on the CPI, or 2.5 per cent – was introduced to restore the value of the state pension after decades of decline. Although for the average worker the replacement rate – the proportion of their working income that the state pension replaces – has improved, it is still just over half as generous as the average among OECD countries. Although today’s pensioners would lose out if the triple lock was abandoned, it is young workers who would be most harshly penalised. Modelling suggests linking increases solely to earnings would increase the number of pensioners living in poverty in 2050 by 700,000 compared to maintaining the triple lock.2

Put state pension age increases on hold. The state pension age is due to reach 66 for men and women this October and continue rising. Increases already implemented have raised the number of older people in work, but have also significantly increased poverty rates for those just below state pension age.3 Many workers in their sixties are unable to work because of ill health, while others struggle to find work after losing a job. With the Bank of England expecting unemployment to reach 9 per cent this year, the logic of pushing ahead with state pension age increases is questionable. In light of expected high unemployment, and the slow-down in longevity improvements over the last decade, the government should suspend planned increases.

Protect universal pensioner benefits. Universal benefits such as free TV licences for over- 75s and winter fuel payments played an important role in reducing pensioner poverty. The epidemic of loneliness as people have been confined to their homes has also confirmed the importance of TV as a source of information and company for many older people. So, the government must restore funding for free TV licences, and protect other universal benefits. Restricting these benefits would not only accelerate the increases in pensioner poverty rates seen in recent years, it would also undermine our economic recovery by reducing demand at exactly the time the government needs to support the economy.

A crisis in childcare

As we move out of the initial phase of the Covid-19 crisis, new economic and social challenges will arise. Without early and sustained government action parents’, and mainly mothers’, ability to stay in paid work or move out of unemployment into new jobs risks being severely limited by a lack of childcare. Before the crisis, too many working mothers already found it impossible to find childcare to fit around their hours, particularly those working shifts or with insecure contracts. Only just over half (57 per cent) of local authorities in England had enough childcare for parents who work full-time and just a fifth (22 per cent) had enough for parents working atypical hours. [3] But the impact of social distancing on childcare provision looks to significantly exacerbate the challenges faced by working parents.

Widespread school closures have left many working parents unable to leave the home to work, and where they can work at home they have faced challenges in balancing the competing demands they face. Again, this is disproportionately affecting women, with mothers typically providing at least 50 per cent more childcare and spending around 10 per cent to 30 per cent more time home schooling their children than fathers during lockdown. [4]

While workers can request to be furloughed and government guidance makes it clear that employees can be furloughed if they are unable to work due to childcare and caring commitments, employers are under no obligation to agree to these requests. This has already left many working parents at risk of losing their jobs due to a lack of safe childcare. Once the furlough scheme’s generosity is reduced, and the scheme eventually ends, working parents whose children have not returned to school (either because their school is not offering full-time places to their children’s age group or because their child is unable to return as they are clinically vulnerable or living in a household with someone who is) will face an even more challenging situation.

While there has been much discussion of the positive impacts that school re-openings could have for working parents when this happens, it is now clear that a safe return to the classroom will still leave significant childcare gaps for most working parents. The challenges of social distancing requirements will include:

  • cuts in breakfast club and after school provision because of social distancing, which particularly impacts children from low-income families
  • childminders not being able to mix school children with younger children, further reducing the availability of after school childcare
  • school summer holiday provision unlikely to operate as usual
  • many nurseries not having the physical space to keep small groups of children in separate rooms, resulting in a reduced number of nursery spaces and a risk of higher fees leading to permanent nursery closures where these are not affordable by parents
  • childminders and nurseries not having the budgets to put in place measures necessary to comply with government guidance, and closing as a result
  • many grandparents who previously provided informal unpaid childcare now being advised to shield themselves and not being able to take on childcare responsibilities.

In addition, one in six childcare providers have closed since the start of the crisis and one in three are unsure if they will reopen. The government needs to recognise the scale of the looming childcare challenge now – not to do so will leave will many working women locked out of the jobs market, and risks women’s employment rates falling for the first time in decades.

To address these problems, the government must:

  • make significant investment in the availability and affordability of flexible childcare to address these shortages, ensuring there is provision for shift workers and those on atypical hours
  • ensure there is a day-one right to paid parental leave, including for freelancers, those on agency and zero-hours contracts
  • create new rights for working parents to ensure that they do not face an employment penalty for providing emergency childcare.
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