The recently unemployed should be handed higher benefits to tide them over whilst they are looking for a new job, a leading Conservative think tank has recommended.
Bright Blue said the Government should look at introducing a European-style insurance scheme that would pay people who are laid off a proportion of their salary.
It warned that the UK does not provide enough of a financial cushion for the short-term out of work, whilst being more generous to the long-term jobless than other countries.
The plunge in income many Britons face when losing their job can lead to a slew of “adverse consequences” that makes it more difficult for them to return to employment, it found.
'Contributory' system
The proposal comes with ministers conducting a review into how to get some of Britain’s nine million economically inactive back to work, especially early retirees in their 50s.
Germany, the Netherlands and Denmark all have “contributory” systems where people in work pay tax into a safety net fund that covers them if they are made redundant.
Bright Blue said the Government should introduce a similar scheme via a voluntary top-up to National Insurance, which would be paid by both employer and employee.
It said the scheme should cover 50-80 per cent of a person’s salary for at least six months, with payments after that linked to how long somebody has contributed to the scheme.
There would be a cap on the maximum monthly amount that could be claimed, to make the system fairer.
Payments would be conditional on actively searching for a job or entering full-time education or training. People who resign would not be immediately entitled to them.
Those wanting to set up their own businesses could be allowed to withdraw the money as a lump sum for that purpose, in a bid to encourage entrepreneurship.
It is also proposed that workers who have paid in and reached retirement without requiring the cover would benefit from pension incentives, to recoup some of their tax contribution.
'More significant income volatility'
“By providing a low level of income protection at the start, because of the lack of contributory benefits, households face much more significant income volatility if their main earner loses their job,” said the report.
“Higher income volatility has been found to be associated with a number of adverse consequences both in the UK and in other developed nations, including: increased chance of poverty and deprivation, especially food insecurity; impaired ability to make financial decisions; worse health and subjective wellbeing; and decline in educational outcomes for children in income-volatile households.”
Polling for the report, which is supported by Stephen Crabb, a former work and pensions secretary, showed the proposal is backed by 42 per cent of people.