The third essay in our Beveridge Rebooted series explores what it would take to make contributory welfare fly. With parties of all colours expressing a commitment to restoring "something for something" in welfare, we outline four major hurdles that will need to be overcome to re-engineer contributory welfare:
First, the system needs to resolve the ‘free-rider’ problem, by tackling the ‘something for nothing’ issue.
Second, it must ensure an approximate relationship between payments made to the system by contributors, and what each person perceives they are likely to get out of it during their working life. It must, in short, tackle the ‘nothing for something’ problem.
Third, as with any insurance scheme it must restrict the likelihood that claimants will change their behaviour because they don’t bear the cost of drawing on the system, minimising moral hazard.
Finally, a contributory system must be designed to be distinct from the rest of the public finance, keeping the bean-counters out, so as to avoid being subverted by government over time.
Resolving each of these issues tells us something about the design of a viable contributory welfare system. But achieving it would be a major political undertaking.