Austerity, the welfare state and protection insurance


    We are probably less than six months away from the next general election. A key issue on the agenda will be what the main parties will do to tackle the deficit and what impact that will have on the welfare state.

    In an interview with The Sunday Times in September, prime minister David Cameron revealed that he would slash the government’s benefits cap by £3,000 a year from the current level of £26,000 if the Tories win the election.

    Meanwhile Labour Leader Ed Miliband pledged in a speech last year: “The next Labour government will have less money to spend…Social security spending, vital as it is, cannot be exempt from that discipline.”

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    He also said Labour had spent too much on incapacity benefit while in power from 1997 to 2010. “The last Labour government should have acted on it sooner,” he said, emphasising broad parallels with the cuts instigated by the coalition.

    No doubt the next six months will see a range of proposals, stats, counter-arguments and confusions of who will do what, and how. What does seem to be agreed, by those in power at least, is that there are limits to how much the welfare state can support its people, especially given the state of the public finances.

    Helen White, head of protection, Association of British Insurers, recently highlighted research for the ABI by the Centre for Economic and Social Exclusion showing “10.8 million households – more than 60% of working families – would need more than the state currently provides if critical illness or disability struck down the main breadwinner”.

    She said: “If these households had better safety nets, through private insurance, rather than relying on inadequate state support, they could ensure that money was not a primary concern at a time when sickness or disability has forced them to unexpectedly leave work.”

    Of course the amount spent on benefits is huge - over £166bn by the Department of Work and Pensions in 2011-12 – but not all of that is relevant to protection (child benefit for example) and there are other areas like the NHS that do have a direct relationship with PMI.

    So here are three areas where protection of one form or another can help to cover the welfare state’s limitations.

    1. Long-term illness

    As you look through the amount of benefits the Government pays out for ill health there seems to be a long list: disability living allowance, income support, housing benefit, attendance allowance, incapacity benefit, severe disablement allowance, and many more.

    However, some of these are no longer relevant. For example, you cannot receive severe disablement allowance if you are making a new claim because this was abolished in April 2001, but if you are already receiving the allowance you can continue claiming.

    At present the most relevant benefit for the long-term sick tends to be employment and support allowance (ESA). If you’re ill or disabled, ESA offers you financial support if you’re unable to work and it comes in two forms: