Coronavirus and the benefits system: What support is available?

With the continuing increase in coronavirus cases, much of the current debate has rightly focused on Statutory Sick Pay (SSP). The Government’s announcement to extend SSP to day one of absence is welcome, but low earners and the self-employed are not entitled to SSP. This poses a challenge for protecting family incomes from the spread of coronavirus. We’ve recently set out the case for extending SSP to the two million people who earn too little (less than £118 per week) to be eligible, and considering how sick pay can be delivered to five million self-employed people. But on Sunday the Chancellor suggested that he was instead thinking about how the benefits system can best support these groups. So what support is available, and through what mechanisms?

The answer is not that much and…it’s complicated. Depending on your circumstances you may be able to claim: contributory (‘new-style’) Employment and Support Allowance (ESA) – the benefit for those with heath conditions affecting their ability to work; contributory Jobseeker’s Allowance (JSA); Universal Credit (UC); or some combination of the above. In all cases, benefits are initially paid at £73.10 per week (and £57.90 for under-25s) – much less than the SSP rate of £94.25. While how much you get paid is the same, whether you’re entitled, and how quickly you get paid varies confusingly across these benefits.

So far the government has focused on saying that people can claim Universal Credit if they’re not entitled to SSP. As has been heavily publicised however, the monthly payment cycle means new claimants will have to wait five weeks for their first payment. Loans or advances are available, which can help ease the financial pressure of the waiting period. But the recovery of these loans down the line can lead to financial hardship.

Is there any way round the five-week wait? Yes. Because our contributory benefits are leftovers from legacy pre-UC benefits, they do not use the monthly payment cycle, and so may lead to quicker payments. Indeed, payments are generally made within two weeks of someone becoming entitled to them. In addition, like SSP they have the advantage over UC of not being means tested on the basis of wider family income. So far, so good. But there are two reasons why this route can’t be seen as the whole answer to the policy challenge of ensuring low-paid workers and the self-employed receive some income support quickly if affected by coronavirus.

First, to be eligible for contributory benefits you have to have contributed via National Insurance (NI). This usually means having earned at least £5,650 (2017-18) and £5,800 (2018-19) in each of the past two tax years, and having had earnings of £118 per week for 26 weeks in one of them. In practice, the result is that most employees who are ineligible for SSP because they earn too little are also unlikely to be eligible for contributory ESA. So it is not the answer for most low earners, for whom the right policy is to extend SSP to low-paid workers, as noted above. Where contributory benefits are likely to be of some use is for the self-employed who have no access to SSP. Crucially however, they too will need to have made sufficient NI contributions to claim.

The second challenge to contributory ESA leading to quicker payments is that while it does not have UC’s five-week wait from when entitlement starts to receiving a payment, new claims are subject to an up front seven-day ‘waiting period’ before an entitlement actually kicks in. In practice, this wait means claimants would normally receive their first payment after three weeks. The good news is that this ‘waiting period’ is a policy choice, which ministers have chosen not to include in UC. So, the government could look to remove this waiting period, enabling contributory benefits payments to be made in two weeks, less than half the wait in UC.

In the second quarter of 2019, there were around 38,000 new claims to JSA, and an estimated 22,000 to ESA, as the chart below shows. On this basis, removing the seven-day wait for the next three months would cost around £4.4 million. If claims double – not unlikely given a rise in self-employed workers in particular self-isolating or off sick – then the cost would increase proportionally to £8.8 million (and so on).

What about the practical challenge of processing new benefit claims in an outbreak? In the first instance, given the need to contain the spread of the virus, the Government will need to rethink the requirement to get a sick note (in the case of ESA or the equivalent route in UC) and attend a face-to-face appointment.

And then there’s the question of administrative capacity. A significant rise in coronavirus cases or self-isolation in the UK is likely to lead to higher volumes of new claims to both contributory benefits and UC, through a combination of sickness, and unemployment caused by economic impacts. In the financial crisis in 2009 new claims to JSA almost doubled. Today, with seven million not eligible for SSP and the Government’s stretching coronavirus scenario suggesting a fifth of workers might be off at the peak, the increase could be of that scale, although for a far shorter period of time. With the Jobcentre Plus workforce having fallen by around a third over the past eight years, there is a question as to whether the Department for Work and Pensions is sufficiently prepared for what might come in the next few months.

In summary, the benefit system does offer a route to helping workers ineligible for SSP in a coronavirus outbreak. UC rather than ESA is the likely destination of SSP-ineligible low earners, and its five-week wait is a challenge. Contributory ESA could help many self-employed people to get cash support quickly, while avoiding means testing, especially if the waiting period is removed for a relatively low price-tag. But we mustn’t forget that these benefits are less generous than SSP, and the ability of the Department for Work and Pensions to cope with a big increase in on-flows is far from assured.