Leading Article: The vanishing benefit

THE Labour Party has reacted in Pavlovian manner to reports that the Government may cut entitlement to unemployment benefit from one year to six months. The Opposition also professes to be disturbed by the suggestion that Michael Heseltine, the President of the Board of Trade, is attracted to 'workfare', a system under which benefits would be withheld from those who refused offers of jobs or training. Frank Dobson, Labour's employment spokesman, yesterday accused ministers of 'punishing the victims' and of 'doing a Maxwell'.

This is good knockabout stuff, and may prove politically effective. The fear of unemployment is pervasive at the moment, while knowledge of how the state benefit system works is limited. Most people assume rather vaguely both that they are automatically entitled to benefit if they lose their jobs and that the scheme is a form of contributory insurance. Many further believe that loss of unemployment benefit is synonymous with the loss of all state aid.

The truth is that unemployment benefit is now insurance only in a residual and distorted form. (The same is true of national health 'insurance' and the retirement pension.) Contributions are graded according to earnings, but benefits are flat-rate. Moreover, contributions made more than two years before submitting a claim are disregarded. Consider people who suddenly find themselves unemployed but who have paid in for decades without making claims. If they have moved in and out of the job market over the past two years, they are ineligible for benefit. Their earlier contributions do not count. This is actuarial nonsense.

The remaining insurance element adds to the complexity and to the disproportionate administrative cost of the scheme. Last year it took pounds 8.20 per week to administer unemployment payments for each beneficiary; payments averaged only four or five times as much. Most of this money went on weeding out those technically ineligible rather than

investigating genuine need or individual availability for work. Far from it being a universal benefit, only a minority of the jobless - 29 per cent - drew unemployment benefit. Many of them topped it up with other grants.

About 600,000 people have been without a job for between six months and one year. But only half receive unemployment benefit. Of this 300,000, the great majority would be transferred under the Government's plan from unemployment benefit to Income Support, which is targeted and paid according to need. There would be losers - almost 100,000 on some estimates. Most of these would be spouses (husbands as well as wives) who are unemployed but whose partners are in work.

The shift away from a contributory pseudo-insurance scheme for unemployed people is well advanced. Researchers at the Institute for Fiscal Studies say they have identified 37 changes tending in this direction since 1979. The day will surely come when unemployment benefit vanishes entirely and is replaced by welfare payments made according to need, and by training to ensure that those without work are not condemned to perpetual unemployment because they lack marketable skills. A sensible Opposition would address itself to such matters.