Theresa May is being urged to consider reviving the principle of social insurance to help struggling low-paid workers, as she prepares to flesh out her vision of “a country that works for everyone”.
The prime minister, who will hold the first cabinet meeting since the summer break at Chequers this week, is keen to show that social reform and tackling “burning injustice” remain a priority, despite the urgent need to clarify what the new government hopes to achieve from Brexit.
May is under pressure, not least from her own back benches, to give a clearer signal as to what kind of deal her government hopes to negotiate with the other EU member-states as the government moves to implement the voters’ decision to leave the European club.
Ministers appear to have taken distinct stances on the best deal Britain can hope to strike with the chancellor, Philip Hammond, stressing the importance of retaining access to the single market, including for financial services firms, while Brexiters Liam Fox and David Davis, both of whom will have key roles in the negotiation process, are thought to prefer a go-it-alone approach.
Another knotty issue in May’s back-to-work inbox is Hinkley Point C, the nuclear reactor due to be built by state-owned French firm EDF with Chinese backing, in a complex deal signed by Osborne.
The prime minister has launched an inquiry into the project before giving it the go-ahead, amid concerns about security and value for money. But the Chinese ambassador has warned that a decision to cancel it could affect diplomatic relations between the two countries.
The new business and energy minister, Greg Clark, is also known to be keen to scrutinise the details of the deal and one potential option is to try to separate agreement on Hinkley from a second reactor, at Bradwell in Essex, that China hopes to build. A decision on Hinkley is expected in September.
May will visit China next weekend for her first major international summit – a G20 leaders’ meeting in Huangzhou, in the east of the country, where she is expected to hold her first face-to-face meetings with Barack Obama and Vladimir Putin.
Her fellow leaders are likely to urge her to push ahead with the Brexit process, to minimise the risk that a prolonged period of uncertainty saps economic confidence. The International Monetary Fund recently warned that the referendum result had thrown a “spanner in the works” of the global economy.
A decision on whether to back a third runway at Heathrow – or other options for expanding airport capacity in the south-east such as increasing the size of Gatwick – is also expected in the autumn.
Meanwhile May will chair the first meeting of her social reform cabinet committee this week – a gathering of relevant ministers – in a bid to show that improving the lives of those she described in her first speech in Downing Street as “just managing” is high on her agenda.
One option thought to be under consideration is to shift the focus of welfare policy from the cost-cutting approach of George Osborne, which many Conservatives believe reached its limit when reductions to tax credits and disability payments were rejected by his own backbenchers during a public outcry, to a self-help system.
May’s new director of policy, John Godfrey, is a keen advocate of what in his last job, at financial services giant Legal and General, he called “Beveridge 2.0”: using technology to introduce new forms of social insurance.
Godfrey told a campaigning group, the Financial Inclusion Commission, last year that the systems used to deliver auto-enrolment, the scheme that ensures all low-income workers have a pension, could also be used to help the public insure themselves against unexpected events.
“There is a clear lesson from auto-enrolment that if you have a plumbing network or an infrastructure that works, that auto-enrolment infrastructure could be used for other things which would encourage financial inclusion: things like, for example, life cover, income protection and effective and very genuine personal contributory benefits for things like unemployment and sickness,” he said. “They can be delivered at good value if there is mass participation through either soft compulsion or good behavioural economics.”
As an example he suggested that a worker earning £27,000, who paid in 0.5% of their earnings, or £11 a month, could then be entitled to claim 40% of their income for 12 months if they fell sick – perhaps two to three times what they might get on the existing contributory employment support allowance.
Such new social insurance products would not replace universal credit, the means-tested welfare system championed by Iain Duncan Smith, which is currently being rolled out across the UK – but they could supplement it.
Politically partly restoring the link between contributions and receipts in the welfare system could help tackle the perception that some get “something for nothing” and sharpen May’s appeal to the “just managing” households she has said she wants to help.
Ryan Shorthouse, director of a Conservative thinktank, Bright Blue, said: “Thanks in large part to the proposed cuts to tax credits and the personal independence payment, there is a danger that the Conservatives have developed a politically unhelpful and one-dimensional reputation on welfare reform: namely, they are simply cost-cutters. Theresa May’s government has a real opportunity to change this.
“There are a growing number of leading centre-right policymakers inside and outside of government who believe the next stage of welfare reform should be to offer more contributory benefits. The public overwhelmingly believe that it is fair that those who have worked longer – who have put more into the system – deserve more support in testing times.”
Governments have found it hard to adapt the welfare state to a labour market in which many jobs are transient and a growing proportion of the workforce are self-employed. Nest, the national savings scheme behind auto-enrolment, allows workers to continue paying in when they move jobs, or while out of work.
May is also expected to make an autumn announcement on expanding grammar schools – perhaps at Tory conference, where grassroots members are likely to be cheered by it – though she is likely to opt for something more modest than a nationwide edict to bring back selection.
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