Unemployment Insurance has hit the headlines recently, mostly due to a rise in demand due to the recession, but also due to misselling of payment protection accident, sickness and unemployment insurance and the subsequent flood of claims.
As a concept the first type of Unemployment Insurance available in the UK was created by the Liberal Government of Lloyd George with the passing of the National Insurance Act in 1911.
The bill was introduced mainly to protect the two point five million workers in manual trades who along with their employers were required to pay into a central fund to cover the claims.
The payments were calculated on a sliding scale up to a maximum of seven shillings a week.
The cover period for which claims could be drawn was limited to one fifth of the period of contributions.
In other words you had to be in work and paying contributions or premiums for five years before you would be covered for unemployment that lasted a year.
The unemployed who did not qualify for cover or who had not been in work long enough had recourse to the Poor Law authorities which inevitably at this time still meant the workhouse for many unfortunates.
High premiums and poor cover, not a very good effort for the first Government led insurance scheme, but it did offer some protection to those in work, and coupled with the social change of the Edwardian period led to a new sense of Government social responsibility and a working class mentality that became the foundations of the Labour Party and eventually led to other social provisions such as the NHS.
This National Unemployment Insurance scheme proved to be inadequate to provide for the large numbers of unemployed and returning demobilised military, that followed the end of the First World War in 1918.
A temporary scheme of unemployment relief was designed to combat the suffering, which was known as the ‘Out of Work Donation’.
This enabled a much larger payment of 29 shillings a week for men and 24 shillings for women to be made to claimants, with additional allowances for dependents, to most adults who registered as unemployed.
This was available for a strictly limited period, but the Government was forced to grant extensions as more and more servicemen were demobilised.
In 1920 the Unemployment Insurance Act was passed amid an mini economic recovery. The Act extended the provision of the 1911 Act to most workers earning less than £250 per year.
The period in which money could be claimed was shortened to one sixth of the period of payment contributions and for the first time a maximum cover period, during which benefits would be paid was set to 15 weeks.
The UK Economy changed radically for the worse early in 1921 and by the middle of the year unemployment exacerbated by the coal strike, was close to 20 per cent. Under these conditions, the contributory system and the one in six rule were untenable given the threat of political instability and civil unrest among the unemployed.
The Unemployment Insurance Act of March 1921 relaxed the ‘one in six’ rule by providing for the payment of ‘uncovenanted’ benefit without previous contributions. The intention was that benefits would be paid for a maximum of 32 weeks.
The 1921 Act also introduced for the first time what were effectively ‘policy conditions’ a ‘seeking work’ test for those claiming benefit.
Claimants had attend a labour exchange and show that they were genuinely seeking work and were obliged to accept any work paying a ‘fair’ wage – whatever that means!.
In February 1922 further conditions were introduced by way of a means test, aimed at restricting benefit payments. Some groups, such as single adults living with relatives, could be excluded unless it would cause serious hardship.
So what has gone wrong with the system of Nationalised Unemployment Insurance?
Jump forward sixty years to 1979 when Margaret Thatcher duped the nation into electing her with her infamous Labour isn’t working campaign…
…only to return Britain to the largest number of Unemployed since the 1920′s.
Under the Conservative Government of the 1980′s the number of claimants for unemployment insurance far outweighed the resources being paid into the risk pool.
Civil unrest spread to every corner of the country in 1981 as the great unemployed sought vengeance on the Tory elite.
Unemployment Insurance now had to cover many millions who had never contributed to the system, not just those who had worked all their lives and paid their premiums. Fortunately for Mrs Thatcher she was able to pay for her mismanagement by squandering the proceeds of North Sea oil and keeping most of the nation at subsistence level.
So little had changed in sixty years. Out of this mess in the late 1980′s was born a new private market for mortgage protection insurance for unemployment, aimed at the new home owing working classes and middle classes; and initiated by the banks and building societies, primarily to ensure that their mortgages got paid should the home owner lose their job.
Most of these policies were flawed in their design and have been subject to recent criticism leading to the mis-selling findings by the Competition Commission and large fines by the FSA.
To counter this the insurance industry came up with an income protection policy designed to protect the insured against unemployment for a fixed period and a fixed amount commensurate with the level of premium.
National Unemployment Insurance still exists in the form of job seekers allowance or income support whatever they wish to call it, today pays out very little, is still means tested although everyone has to still pay ‘national insurance’ contributions and has an excess period of 13 weeks before you can claim.
One thing that hasn’t changed in nearly 100 years is that, if you are unfortunate enough to become unemployed – you can’t rely on the Government to cover you!
In the current recession it is wise to protect yourself against unemployment with income protection.
Very reasonably rated polices are available from independent suppliers such as Personal Accident.