Media Release

‘Facebook Welfare’ to put social relationships at the heart of jobseeker support

The Government should adopt a radical new model of unemployment support combining retirement and rainy-day savings, underpinned by the power of social relationships, the Social Market Foundation think tank claims today (Monday 17 June).

The SMF’s plan for ‘Facebook welfare’ is an innovative policy to restore the contributory principle to welfare – the goal of the main political parties ahead of the election –  in a way that could have significant benefits for the public purse . The scheme offers the blueprint for more generous unemployment protection for the “squeezed middle” that both strengthens work incentives and allows unemployed people time to find better job matches.

Under the SMF’s proposal:

  • All citizens from the age of 16 would open their own Lifecycle Account into which they would save a compulsory percentage of their  gross income each month, nominating three friends or family as account ‘guarantors’;
  • In the event of unemployment, people would automatically have their incomes topped-up to 70% of their previous earnings, funded from their own account, with the money drawn down repaid from subsequent earnings;
  • If there are insufficient funds in the account to cover a period of unemployment, the person would be allowed to borrow a limited amount from the account;
  • If people fail to repay the money drawn down whilst unemployed within two years, their three guarantors would be liable to repay a proportion of the outstanding balance, giving them a direct interest in their friend’s work search efforts;
  • Upon retirement, Lifecycle Account balances would be used to purchase annuities to be paid in addition to the state pension.

The scheme sits alongside existing means-tested support and does not require the Government to find extra cash to fund it. It builds on the recently introduced auto-enrolment pension policy by integrating retirement saving with unemployment support, smoothing consumption over a person’s lifetime. The SMF believes that the scheme could end up improving the public finances by strengthening work incentives.

The guarantor element of the plan, which the SMF has dubbed ‘Facebook welfare’ due to its use of social networks, is a radical departure from the impersonal bureaucratic welfare system that exists in the UK. It draws on academic research on the superior ability of social groups to boost work incentives.

Ian Mulheirn, SMF Director and author of the report said:

“People’s friends and family have a far greater capacity than any government agency to help them back into work.

“As well as having financial skin in the game, the guarantors are able to observe and support their friend much more closely in their job hunt than a JobCentre threatening benefits sanctions ever could.

“‘Facebook welfare’ would therefore introduce a much-needed sense of compassionate obligation into the welfare system.”

The SMF’s plan draws on the insight that orthodox benefits policy is insufficient to support adequate job search time for skilled workers, but more generous state-led benefits can lead to perverse incentives and fuel the widespread feeling that the welfare system offers claimants “something for nothing”.

Ian Mulheirn continued:

“Decades of unimaginative welfare policy have shown us that when the state alone funds unemployment support, the system is plagued by problems: perverse incentives, meagre benefits and demeaning monitoring regimes. Our national debate is bogged down in a fruitless argument about how to strike a balance between these apparently inevitable evils.

“But putting the power of social relationships at the leading edge of the benefits system helps overcome these problems whilst also providing a better safety net for those who have paid in, alongside a much more potent social obligation to get back to work.”

This essay is the final part of the SMF’s Beveridge Rebooted project, funded by the Joseph Rowntree Foundation, which examines the deep crisis of legitimacy in the welfare system.

JRF’s Head of Research, Chris Goulden said:

“This piece of work by SMF is a hugely valuable contribution to the debate on the future of our social security system. We seem to have reached an impasse on the basis of our current modes of thinking about how to ensure people’s basic needs are met when they are unlucky enough to lose their jobs or fall ill.

“The SMF have undertaken a rigorous analysis of the history of welfare alongside a nuanced understanding of current policies. New ideas like this are what we need to break through the political and intellectual impasse.”

As well as integrating retirement saving and unemployment support, the SMF argue that their Lifecycle Account could form the basis of the emerging 21st Century Welfare State, incorporating other lifetime expenses, such as higher education and childcare.

The think tank will be presenting the plan to representatives from the Government and Opposition over the coming months.

Notes to Editors

Example case study:

Jane is an experienced lab technician, earning £20,000 per year. She lives on the Wirral and is single. Her net income is £315.83 per week after tax and National Insurance contributions. Jane has identified three guarantors and contributes 8% of her gross income into her Lifecycle Account, above £5,668 per year.

On being made redundant from her job, Jane is entitled to £86.54 per week in Local Housing Allowance for a one-bed flat in the Wirral. She also receives Jobseeker’s Allowance at £71.70. Her net income out of work is therefore £158.24 per week: 50.1% of her net income in work.

Jane’s Lifecycle Account automatically tops-up her income to 70% of her previous net income, for the first six months of her unemployment. This involves drawing down £62.84 per week, taking weekly net income during the initial phase of unemployment to £221.08.

Jane does not find work within six months, so her top-up payments will stop, leaving her reliant on the means-tested minimum. By this time, Jane’s Lifecycle Account balance would have been reduced by £1634.

If Jane finds a job after six months and repays the borrowed money at a contribution rate of 8%, she will have repaid the balance after seventeen months.

If Jane remains out of work and is unable to make repayments within two years, her guarantors will be liable to for 10% of the money borrowed from her Account. In this example, Jane’s guarantors would be liable for £163 each to be taken from their lifecycle accounts.

  • Facebook Welfare is the final chapter of the SMF’s Beveridge Rebooted report on the crisis of legitimacy in welfare and how to resolve it. Beveridge Rebooted is sponsored by the Joseph Rowntree Foundation
  • The Social Market Foundation (SMF) is a leading UK think tank, recently named UK Think Tank of The Year and Economic and Financial Think Tank of the Year
  • The SMF develops innovative ideas across a broad range of economic and social policy, champions policy ideas which marry markets with social justice and takes a pro-market rather than free-market approach.



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