Direct Request (CEACR) - adopted 2007, published 97th ILC session (2008)

The Committee took note of the information supplied by the Government in its detailed report on the Convention for the period 2001–06, which has provided replies on a number of points raised in its previous comments, as well as of the 38th and 39th annual reports on the application by the United Kingdom of the European Code of Social Security. The Committee would like the Government to provide additional information on the following points.

Part III (Sickness benefit) of the Convention. (a) Article 16, paragraph 1, in relation to Article 66 (level of the benefit). The detailed report of the Government stated that incapacity benefit (IB) is the main state sickness benefit in the United Kingdom for persons unable to work because of either short-term or long-term sickness. Employed workers are paid statutory sick pay (SSP) by their employers for the first 28 weeks of incapacity. Once entitlement to SSP has been exhausted employees can transfer on to IB. Employees who do not qualify for SSP can claim IB instead from the onset of incapacity. Comparing the calculations of the replacement level of the weekly rates of the short-term IB and of the SSP made in the last two detailed reports of the Government in 2001 and 2006, the Committee notes that, in addition to the child benefit for two children and the adult dependency increase which were taken into account in 2001, the calculations made in 2006 include the child tax credit (CTC) (£78.69 for both children). With the addition of the CTC, the replacement rate of the short-term IB and of the SSP attains, respectfully, 51 per cent and 53.7 per cent of the reference wage, which is above the minimum level of 45 per cent prescribed by the Code. If, however, the calculation were made without the CTC, the replacement rate of both the short-term IB (39.15 per cent) and the SSP (42.55 per cent) would not attain the minimum level prescribed by the Code. The Committee notes that the amount of the CTC is composed of different elements and depends on the gross annual family income of the beneficiary. It would like the Government to show in its next report how the weekly rate of the CTC is calculated for the standard beneficiary with gross annual family income equal or higher than the gross annual wage of an ordinary adult male labourer determined under Article 66 of the Convention.

(b) The 39th report on the European Code of Social Security indicated that on 3 May 2007 the Welfare Reform Act was given Royal Assent, bringing into law a number of reforms designed to enable people to come off benefit and move into work. The principal reform measure replaces IB with a new benefit to be introduced from 2008 called the Employment and Support Allowance (ESA). New customers will go onto an assessment phase rate of the ESA for 13 weeks while their medical condition is assessed. The majority of customers, those who should be able to make steps to return to work, will receive a work-related activity component on top of the basic rate after the first 13 weeks. This component can be subject to sanctions if the claimant does not engage in the conditionality requirements without good reason. Those with the most severe health conditions will receive the support component, which will be payable at a higher rate and free of any requirement to engage in work-related activities. An individual’s eligibility for incapacity benefits is assessed through the reviewed personal capability assessment (PCA) process which identifies people who are capable of taking part in work-related activity and the support required to help them get back to work, as well as those who are so limited by their illness or disability that it would be unreasonable to require them to undertake any form of work-related activity in the foreseeable future. PCA refocuses physical function descriptors and scores to better reflect the activities and functional capability that a reasonable employer would expect of his or her workforce and develops a new element to the assessment, the work-focused, health-related assessment, focusing on the health‑related barriers to work facing the customer, and the health interventions and workplace adaptations that might help that person return to work. The revised assessment will begin being used in 2008 alongside the new ESA. To further encourage a move into paid employment among people claiming incapacity benefits, a new Pathways to Work package was introduced, with national roll-out scheduled for completion in 2008. This package includes: a series of mandatory work-focused interviews; programmes designed to boost claimants’ prospects of being able to work; and increased financial incentives for individuals to enter paid employment. The Return to Work Credit (RTWC) is one of the main innovative components of the package: it is an earnings supplement available to incapacity benefit recipients who move into paid work. Payable at £40 per week, for a maximum of 52 weeks, it is available to those who have been receiving benefits for at least 13 weeks, have found a job of not less than 16 hours, and do not receive earnings in excess of £15,000 per annum. In view of the large number of innovative features of the new legislation, most of which will take effect in 2008, the Committee would be grateful if the Government would indicate in its next report, how these measures will affect the application of each of the Articles of Part III of the Convention. Please also provide the calculation of the level of the new ESA.

Part IV (Unemployment benefit). In relation to the Committee’s comments concerned with the low rate of the contribution-based jobseekers’ allowance (JSA), the Government responds in the 39th report on the European Code of Social Security, that social security benefits in the United Kingdom are paid at a flat rate, in that they are not indexed to the claimant’s previous income. The benefits are uprated annually in line with prices. This means that the purchasing power of the benefit remains the same year-on-year. Earnings, on the other hand, in a healthy economy tend to increase by more than the rate of inflation. People in work therefore see their standard of living improve year-on-year. Thus, over a period of time there is a tendency to see benefit rates fall behind average earnings but this does not mean that the benefit claimant is getting poorer; simply that their standard of living is remaining constant. The Government believes that benefit rates are pitched at the right level – enough to cover essential needs without encouraging benefit dependency. For those whose needs are greater, the United Kingdom has a wide range of means-tested social assistance benefits that guarantee that no person should live in poverty.

While taking due note of the Government’s statement, the Committee would like to remind that the Convention obliges the member States to maintain social security benefits that are paid at a flat rate, as in the United Kingdom, at the level at least equal to the minimum level laid down in its article 66. Notwithstanding this obligation, since the introduction of the contribution-based JSA in 1998 its rate has never attained the minimum prescribed by the Convention. The 2006 report of the Government also shows that the contribution-based JSA for a standard beneficiary (man with wife and two children) increased by the amount of the CB and the CTC represents only 41 per cent of the wage of an ordinary adult male labourer (£290 per week) and thus falls short of the minimum level of 45 per cent required by the Convention. Recalculated without the CTC, the amount of the contribution-based JSA represented in 2006 was only 27.13 per cent down from 40.04 per cent it attained in 2001. In absolute figures, the contribution-based JSA has increased over the five-year period covered by the detailed report (2001–06) from £53.05 to £57.45 or by 8.3 per cent, while the Retail Price Index has grown by 12.8 per cent and the index of earnings by 16.13 per cent. The Committee is concerned over the fact that the rate of the contribution-based JSA, which the Government considers to be pitched at the right level is consistently kept lower than the minimum standard established as far back as 1952, and does not even catch up with the growth of inflation and cost of living in the country. The Committee finds that the traditional logic and principles of social insurance are being reversed when persons entitled to contribution-based benefits receive benefits so low that they would be better off on social assistance.

Part V (Old age benefit). (a) Article 28(a) (Level of benefit). According to the 2006 report, the weekly rate of retirement pension for a man with 30 qualifying years would constitute 69 per cent of a full weekly pension (payable after 44 years’ contribution) and would thus amount to £58.13 plus £34.85 in respect of a wife of pension age. The resulting amount of £92.98 would represent 32.06 per cent of the reference wage (£290.00 per week). The Committee observes that this rate of retirement pension is far below the minimum level of 40 per cent prescribed by the Convention. It would therefore ask the Government to include in its next report, updated calculation of the rate of the old-age benefit for a standard beneficiary – man with wife of pension age without children who do not receive any child or family benefit.

(b) Reform of the state pension system. The 39th report on the Code refers to the Pensions Act 2007, which puts into law the reforms to the state pension system to take effect from 2010 and creates a new scheme of personal accounts with automatic enrolment, which will provide from 2012 on a simple way for people to save more and to take personal responsibility for the income they want in retirement. In a band of earnings of between around £5,000 a year and £33,000 a year, employees will contribute 4 per cent to the new scheme, employers – 3 per cent, and a further 1 per cent will be contributed in the form of normal tax relief. Up to 10 million people could be saving in a personal account and by retirement, their pension funds could be worth up to 25 per cent more because of lower charges. Reforms of the state pension system reduce the number of qualifying years needed to receive a full basic state pension (BSP) from 39 for women and 40 for men to 30 years for both. The state pension age will be gradually raised in line with gains in average life expectancy. The state pension age for women is due to rise from 60 to 65 between 2010 and 2020, to equalize with men’s state pension age. There will be a subsequent rise, between 2024 and 2046, to 68 for both men and women to reflect increasing longevity in society and secure the financial stability and sustainability of the state pension system for the long term. Annual cost-of-living increases in BSP will be linked with earnings rather than prices. By 2050, the BSP could be worth twice as much as if it had been linked to prices. The state pension will better reflect the different ways in which people contribute to society and will become fairer to those with caring responsibilities, who tend to be women. This will be achieved by abolishing the initial contribution conditions to the BSP, so that caring for children or the severely disabled will build their entitlement without having to make a minimum level of contributions, as well as by introducing a new weekly credit for those caring for children and a new contributory credit for those caring for severely disabled people for 20 hours or more per week. Anyone who has been in employment or caring throughout their working life could receive £135 a week at retirement in state pensions – which is £20 a week above the guaranteed income level. In 2010, 70 per cent of women reaching state pension age will be entitled to a full BSP, compared to 30 per cent now. By 2025, over 90 per cent of women and men reaching state pension age will be entitled to the full BSP – compared to about 80 per cent without reform.

The Committee observes that the above reform measures are taken with a long-term perspective in mind and will enter into force from 2010 on. In the meantime, it would like the Government to continue to provide information on the new developments in the pension reform, indicating, in particular, in respect of the standard beneficiary, the part of the replacement income in retirement which in the forecasted timeframe will be provided by the BSP and the second state pension, and the part which is expected to be supplied from the savings in the personal account.

Part X (Survivors’ benefit). (a) Article 62(a). The Committee notes that, in addition to the CB, the calculations made in the 2006 report include the CTC (£78.69 for both children). With the addition of the CTC, the replacement rate of the Widowed Parent’s Allowance (WPA) attains 48.6 per cent of the reference wage, which is above the minimum level of 40 per cent prescribed by the Convention, while, without the CTC, this rate would attain only 35.53 per cent The Committee notes that the amount of the CTC is composed of different elements and depends on the gross annual family income of the beneficiary. It would like the Government to show in its next report how the weekly rate of the CTC is calculated for the standard beneficiary with gross annual family income equal or higher than the gross annual wage of an ordinary adult male labourer determined under Article 66 of the Convention.

(b) Article 63, paragraphs 1(a) and 2(a). According to the 2006 report, the weekly rate of widow’s benefit is £84.25 basic WPA. To receive 100 per cent basic rate WPA, the late husband must have had qualifying years for about 90 per cent of the years in his working life. If the number of qualifying years is less than the number needed for a 100 per cent basic rate, the allowance is reduced accordingly; no allowance is payable if the number of qualifying years is less than a quarter of the number needed. The Committee would like to know how this condition might affect the level of benefit of a widow whose late husband had 15 qualifying years out of, for example, 25 years of working life, or the payment of a reduced benefit when he had only five such qualifying years.

[The Government is asked to reply in detail to the present comments in 2008.]