Progress | Centre-left Labour politics

Incentivising young people to save

My case as a young person wishing to save raises awkward questions for the current welfare system. Will the IDS reforms combat the pincer movement that young people get caught in?

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Last week saw the second reading of the coalition’s proposed welfare reform bill in the House of Commons. It is said to be the biggest overhaul of the benefits system since the 1940s, proposing that six separate benefits be replaced by one universal credit.

During the bill’s second reading, opposition MPs raised a number of concerns, particularly in relation to the child tax credit, the disability living allowance and housing grants. There have been campaigns against the bill, especially in terms of the impact on disability allowance. These are all important issues. However, there has been little debate as to how young people would fare under the proposed reforms.

Times aren’t great for anyone. However, young people currently face the highest rates of unemployment, with one in five 18- to 24-year-olds out of work. Graduates in low-paid, entry-level jobs are among those most likely to be at risk during of redundancy. This week Iain Duncan Smith, the work and pensions secretary, told young people that bricks and mortar were ‘out of reach’ and that instead they should be investing in their pensions. On top of this, we were warned that the young would face an increased financial burden in a time of an ever-ageing population.

I am a young person who is not entitled to jobseekers’ allowance, having been made redundant three months ago from a public sector job that I worked in for over two years.

I have been in paid employment on and off for the last 10 years, including throughout my undergraduate and postgraduate degrees, and have managed to build up my savings in the hope of acquiring enough for a deposit on a house. Currently, under the current and proposed welfare systems, anyone with over £16k of savings cannot apply for income-based JSA.

I therefore applied for contributions-based JSA but, having not been in the workforce for two full tax years because I was a student, I was informed my contributions were insufficient. This is despite having paid a sufficient amount in the past two (non-tax) years, and having paid tens of thousands throughout my years of part-time employment. The irony is that, had I been working for longer before being made redundant, or had I been earning more money (and therefore paying a higher rate of NI), I would currently be receiving JSA.

My case may be an unfortunate loophole in the system, but it raises an important question. How does the system incentivise people to save? This has been a long-term problem of the welfare system, and such a critique is not limited to the proposed bill. However, with ever-increasing rises in living costs and a population with an over-reliance on credit, this is now, more than ever, an issue that the government needs to carefully consider.

Moreover, it is young people who, having not worked for long enough on a high enough wage, are least likely to meet the contributions-based threshold and most likely to rely on income-assessed JSA. With young people facing the highest rates of unemployment, this is something that requires a more thorough assessment. The new system needs to ensure that young people are incentivised, rather than penalised, for having savings.

Liam Byrne rightly raised the issue of incentivising savings in last week’s debate. However, Iain Duncan Smith responded that benefits were not intended for those with vast amounts of savings. This raises the fundamental ideological issue of whether or not benefits should be universal. But aside from universality, this is a lazy oversimplification. An individual who has managed to carefully save just over £16k for a deposit on a house cannot be equated with someone with several properties and a yacht in the south of France. In a time of rising living costs, there needs to be a fundamental rethink of the threshold, a more flexible approach to individual circumstances and some sort of a wider sliding scale when it comes to income-assessed JSA.

The new welfare reform bill needs to ensure that in providing a universal credit it irons out such inconsistencies and accommodates for the complexities of each single case. Britain needs a benefits system that is inclusive and accessible, and which crucially provides incentives for the population to save. With young people most at risk of redundancy, most likely to rely on income-based JSA, and who face increasing financial strain particularly with a rapidly ageing population, the government needs to make sure that any discussion on a proposed welfare overhaul includes them as well. 


 

Photo: photine

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Lucy James

is a research fellow at Quilliam

1 comment

  • Although I am inclined to agree with a saving threshold because of the protection it gives it can only ever be accepted if the monies are held in dedicated accounts for things like housing.

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