PART V ASSUMPTIONS, METHODS AND PRINCIPLES

300. Scope of Social Security : The term “social security” is used here to denote the securing of an income to take the place of earnings when they are interrupted by unemployment, sickness or accident, to provide for retirement through age, to provide against loss of support by the death of another person, and to meet exceptional expenditures, such as those connected with birth, death and marriage. Primarily social security means security of income up to a minimum, but the provision of an income should be associated with treatment designed to bring the interruption of earnings to an end as soon as possible.

  1.  Three Assumptions: No satisfactory scheme of social security can be devised except on the following assumptions

(A)   Children’s allowances for children up to the age of 15 or if in full-time education up to the age of 16

(B)  Comprehensive health and rehabilitation services for prevention and cure of disease and restoration of capacity for work, available to all members of the community;

(C)   Maintenance of employment, that is to say avoidance of mass unemployment.

The grounds for making these three assumptions, the methods of satisfying them and their relation to the social security scheme are discussed in Part VI. Children’s allowances will be added to all the insurance benefits and Pensions described below in paras. 320-349.

302.  Three Methods of Security: On these three assumptions, a Plan for Social Security is outlined below, combining three distinct methods: social insurance for basic needs; national assistance for special cases; voluntary insurance for additions to the basic provision. Social insurance means the providing of cash payments conditional upon compulsory contributions previously made by, or on behalf of, the insured persons-, irrespective of the resources of the individual at the time of the claim. Social insurance is much the most important of the three methods and is proposed here in a form as comprehensive as possible. But while social insurance can, and should, be the main instrument for guaranteeing income security, it cannot be the only one. It needs to be supplemented both by national assistance and by voluntary insurance. National assistance means the giving of cash payments conditional upon proved need at the time of the claim, irrespective of previous contributions but adjusted by consideration of individual circumstances and paid from the national exchequer. Assistance is an indispensable supplement to social insurance, however the scope of the latter may be widened. In addition to both of these there is place for voluntary insurance. Social insurance and national assistance organised by the State are designed to guarantee, on condition of service, a basic income for subsistence. The actual incomes and by consequence the normal standards of expenditure of different sections of the population differ greatly Making provision for these higher standards is primarily the function of the individual that is to say, it is a matter for free choice and voluntary insurance. But the State should make sure that its measures leave room and encouragement. for such voluntary insurance. The social insurance scheme is the greater part of the Plan for Social Security and its description occupies most of this Part of the Report. But the plan includes national assistance and voluntary insurance as well.

303. Six Principles of Social Insurance : The social insurance scheme set out below as the chief method of social security embodies six fundamental principles

  • Flat rate of subsistence benefit
  • Flat rate of contribution
  • Unification of administrative responsibility
  • Adequacy of benefit
  • Comprehensiveness
  • Classification

304. Flat Rate of Subsistence Benefit: The first fundamental principle of the social insurance scheme is provision of a flat rate of insurance benefit, irrespective of the amount of the earnings which have been interrupted by unemployment or disability or ended by retirement ; exception is made only where prolonged disability has resulted from an industrial accident or disease. This principle follows from the recognition of the place and importance of voluntary insurance in social security and distinguishes the scheme proposed for Britain from the security schemes of Germany, the Soviet Union, the United States and most other countries with the exception of New Zealand. The flat rate is the same for all the principal forms of cessation of earning unemployment, disability, retirement; for maternity and for widowhood there is a temporary benefit at a higher rate.

305. Flat Rate of Contribution: The second fundamental principle of the scheme is that the compulsory contribution required of each insured person or his employer is at a flat rate, irrespective of his means. All insured persons, rich or poor pay the same contributions for the same security; those with larger means will pay more only to the extent that as tax-payers they pay more to the national Exchequer and so to the State share of the Social Insurance Fund. This feature distinguishes the scheme proposed for Britain from the scheme recently established in New Zealand under which the contributions are graduated by income, and are in effect an income-tax assigned to a particular service. Subject moreover to one exception, the contribution will be the same irrespective of the assumed degree of risk affecting particular individuals or forms of employment. The exception is the raising of a proportion of the special cost of benefits and pensions for industrial disability in occupations of high risk by a levy on employers proportionate to risk and payroll (paras 86-90 and 360).

306. Unification of Administrative Responsibility: The third fundamental principle is Unification of administrative responsibility in the interests of efficiency and economy. For each insured person there will be a single weekly contribution, in respect of all his benefits. There will be in each locality a Security Office able to deal with claims of every kind and all sides of security. The methods of paying different kinds of cash benefit will be different and will take account of the circumstances of insured persons, providing for payment at the home or elsewhere, as is necessary. All contributions will be paid into a single Social Insurance Fund and all benefits and other insurance payments will be paid from the fund.

307. Adequacy of Benefit: the fourth fundamental principle is adequacy of benefit in amount and in time. The flat rate of benefit proposed is intended in itself to be sufficient without further resources to provide the minimum income needed for subsistence in all normal cases. It gives room and a basis for additional voluntary provision, but does not assume that in any case. The benefits are adequate also in time, that is to say except for contingencies of a temporary nature , they will continue indefinitely without means test, so long as the need continues, though subject to any change of conditions and treatment required by prolongation of the interruption in earning and occupation.

308. Comprehensiveness: The fifth fundamental principle is that social insurance should be comprehensive, in respect both of the persons covered and of their needs. It should not leave either to national assistance or to voluntary insurance any risk so general or so uniform that social insurance can be justified. For national assistance involves a means test which may discourage voluntary insurance or personal saving. And voluntary insurance can never be sure of covering the ground. For any need moreover which, like direct funeral expenses, is so general and so uniform as to be a fit subject for insurance by compulsion, social insurance is much cheaper to administer than voluntary insurance.

309. Classification: The sixth fundamental principle is that social insurance, while unified and comprehensive, must take account of the different ways of life of different sections of the community; of those dependent on earnings by employment under contract of service, of those earning in other ways, of those rendering vital unpaid service as housewives, of those not yet of age to earn, and of those past earning. The term “classification” is used here to denote adjustment of insurance to the differing circumstances of each of these classes and to many varieties of need and circumstance within each insurance class. But the insurance classes are not economic or social classes

The People and Their Needs

TABLE XVI

Population by security classes

Approximate Numbers in Great Britain, July, 1939

   

Relation   to   Security   Scheme

  Number         Security  Provisions
  Million Contribution Provisions

Medical Treatment

Funeral grant

Retire­ment pension

Dis­ability benefit

Unem­ploy­ment

Train­ing benefit

Indus­trial pension

Other Provisions
             

benefit

(f)

   
I. Employees 18-4 Insured by weekly contribution

X

X

X

X

X

_

X

Removal     and     lodging
    on   Employment Book               grant:   Industrial grant.
                   
II. Others gainfully 2-5 Insured by contributions

X

X

X

x(b)

ii

 
occupied   on Occupation Card                
III. Housewives 9 ‘3 (a) Insured     on     marriage

X

X

X

— (c) — (c)

X

— (c) Marriage grant, maternity
    through       Housewife’s               benefit   (d)   and  grant.
    Policy               widows’ benefit, guardian
                    benefit, separation
                    benefit.
IV. Others  of  working 2-4 Insured by contributions

x

X                     X

X

 
age   on Security Card                
V. Below working age 9’6(g) None      

X

X

 
VI. Retired above 4-3 Insured by contributions

X

X

X

x(e)

 
working age   made   during   working                
    age                
  46-5                  

310. Six Population Classes: the Plan for Social Security starts with consideration of the people and of their needs. From the point of view of social security the people of Britain fall into six main classes described briefly as I-Employees; II-Others gainfully employed; III-Housewives; IV-Others of working age; V-Below working age; VI-Retired above working age. The precise definitions of each of these classes, the boundaries between them and the provision for passage from one to another are discussed in detail in paragraphs 314-319. The approximate numbers in each class and their relation to security needs, as listed in the following paragraph are given in table XVI. Some needs, for medical treatment and for burial are common to all classes. In addition to this, those in Class V (below working age) need children’s allowances, and those in class VI (Retired above working age) need pensions; neither of these classes can be called on to contribute for social insurance. The other four classes all have different needs for which they will be insured by contributions made by or in respect of them. Class I (Employees), in addition to medical treatment, funeral expenses and pension, need security against interruption of earnings by unemployment and disability, however caused. Class II, i.e., persons gainfully occupied otherwise than as employees, cannot be insured against loss of employment, but in addition to medical treatment, funeral expenses and pension they need provision for loss of earnings through disability and they need some provision for loss of livelihood. Class III (Housewives) not being gainfully occupied do not need compensation for loss of earnings through disability or otherwise, but, in addition to the common needs of treatment, funeral expenses and pension, they have a variety of special needs arising out of marriage. Class IV (Others of working age) is a heterogeneous class in which relatively few people remain for any large part of their lives : they all need provision for medical treatment, funeral expenses and retirement, and also for the risk of having to find a new means of livelihood.

311 Eight Primary Causes of Need: The primary needs for social security are of eight kinds, reckoning the composite needs of a married woman as one and including also the needs of childhood (Assumption A) and the need for universal comprehensive medical treatment and rehabilitation (Assumption B). These needs are set out below ; to each there is attached in the security scheme a distinct insurance benefit or benefits. Assistance may enter to deal with any kind of need, where insurance benefit for any reason is inadequate or absent.

Unemployment: that is to say, inability to obtain employment by a person dependent on it and physically fit for it, met by unemployment benefit with removal and lodging grants.

Disability: that is to say, inability of a person of working age, through illness or accident, to pursue a gainful occupation, met by disability benefit and industrial pension.

Loss of Livelihood by person not dependent on paid employment, met by training benefit.

Retirement from occupation, paid or unpaid, through age, met by retirement pension.

Marriage needs of a woman, met by Housewive’s Policy including provision for

(1)     Marriage, met by marriage grant.

(2)    Maternity, met by maternity grant in all cases, and, in the case of a married woman in gainful occupation, also by maternity benefit for a period before and after confinement.

(3)    Interruption or cessation of husband’s earnings by his unemployment, disability or retirement, met by share of benefit or pension with husband.

(4)    Widowhood, met by provision varying according to circumstances Including temporary widow’s benefit for readjustment, guardian benefit while caring for children and training benefit if and when there are no children in need of care.

(5)   Separation, i.e. end of husband’s maintenance by legal separation, or established desertion, met by adaptation of widowhood provisions, including separation benefit, guardian benefit and training benefit.

(6)   Incapacity for household duties, met by provision of paid help in illness as part of treatment.

Funeral Expenses of self or any person for whom responsible, met by funeral grant.

Childhood, provided for by children’s allowances if in full-time education, till sixteen.

Physical Disease or Incapacity, met by medical treatment, domiciliary and institutional, for self and dependants in comprehensive health service and by post-medical rehabilitation.

  1.   Other Needs: The needs listed in para. 311 are the only ones so general and so uniform as to be clearly fit subjects for compulsory insurance. There is, partly for historical reasons, a problem as to the provision to be made for fatal accidents and diseases arising out of employment, by means of an industrial grant. There are many other needs and risks which are sufficiently common to be suited for voluntary insurance, and to a varying extent are already covered by that method. They include a great variety of contingencies for which provision is made by life and endowment insurance; there are risks of fire, theft, or accident ; there are exceptional expenditures such as those on holidays and education.

313.  Explanation of Terms: Before defining more closely the classes into which the people must be divided for purposes of social security, it is necessary to explain three terms. ” Exception” means that certain types of persons are not within a particular class, though apart from the exception they would be ; exception is general, not individual, altering the definition of a class. “Exemption” means that a person though within a particular class is exempted individually from paying the contributions of that class; his employer, if he has one, remains liable for contributions, but these contributions are not counted in judging of the insured person’s claim to benefit. ” Excusal ” means that contributions for which an insured person and his employer, if he has one, would otherwise be liable, are not required, but for the purpose of satisfying contribution conditions for benefit are deemed to have been paid; excusal is normally conditional on the insured person proving that he is unemployed or incapable of work. Exemption and excusal are dealt with more fully in paras. 363-364

314.   Employees (Class I): These are, in general, persons depending for their maintenance upon remuneration received under a contract of service, including apprenticeship. The exact boundaries of this class will be adjusted by certain exceptions and inclusions. There will also be provision for exemption, that is to say, for allowing persons who take work falling within Class I to escape payment of their contributions while still requiring contributions by the employer. Insured persons in this class will hold an employment book which they will present to the employer for stamping.

The principal exception suggested is for family employment, that is to say, employment of one member of a family by another forming part of the same household. This is a development of the existing exception of fathers, sons, daughters, etc., under Agricultural Unemployment Insurance, and is designed to prevent fictitious claims for benefit. Persons excluded from Class I by this exception will fall into Class II.

Persons in Class II or IV taking work temporarily under a contract of service will be allowed to claim exemption from their own contributions, and persons in Class Ill undertaking such work will be allowed to obtain exemption so long as they desire it. Exempt persons will present to the employer a special card to be stamped. by him with the employer’ contribution.

On the other hand, certain exceptions and exemptions under the present scheme will no longer apply. In particular.-

  1. There will be no exception of employees on the ground of the regularity of their employment or that it entitles them to pension. The basis of the security scheme is that all should contribute compulsorily irrespective of their personal risk. For men in the Armed Forces special arrangements for contribution will secure their rights to the benefits of the scheme when they return to civil life. For men in the merchant service there will be special arrangements for contribution adjusted to the conditions of their employment.
  2. There will be no exception of any employees by a remuneration limit.
  3. The right of persons above normal working age to claim exemption will cease on the introduction of the principle that pension is payable only on retirement from work and that men and women reaching the ages of 65 and 60 respectively, will have the option either of continuing to work and contribute or of retiring on pension at any time thereafter.

The possibility of either including in Class I and so insuring against unemployment certain classes of persons who are not technically under a contract of service but work in effect for employers (e.g. manual labour contractors, out-workers and private nurses) or of insuring such classes by special schemes, taking account of their special circumstances, needs further exploration. In one of these classes for instance, namely nurses, in addition to the fact that nurses work sometimes under contract of service and sometimes not, there are special needs arising out of their exposure to infection and out of the urgency of their duties, rendering necessary the possibility of intervals for rest and recuperation. The problem of giving some income security under a special scheme to share fishermen should also be explored. As stated above, apprentices generally will be included in Class I, but special arrangements may be made in regard to their rate of contribution (see para. 408).

315.  Others Gainfully Occupied (Class II): These are, in general, all persons working for gain who are not in Class I. Most of these will be persons working on their own account as employers or by themselves, including shopkeepers and hawkers, farmers, small holders and crofters, share fishermen, entertainers and renderers of professional and personal service and out-workers. They will include also persons who, though technically under contract of service, are excepted from Class I on the ground of family employment. Apart from the possibilities whose exploration is proposed above, persons gainfully occupied otherwise than under contract of service will not be insured against unemployment. Persons in Class II will pay contributions upon an occupation card. If a person in Class II gives up his independent occupation and takes insurable employment he will pass into Class I and will in due course acquire a claim to unemployment benefit in addition to the other benefits of Class II. If he takes insurable employment temporarily he will be allowed to work as an exempt person, i.e. only the employer’s contribution will be paid and he will neither contribute for unemployment nor acquire a right to unemployment benefit. Conversely, a person whose main occupation is employment under a contract of service but who also works regularly or occasionally at some other gainful occupation, will be able to obtain exemption from Class II contributions. Persons in Class II will be able to apply for exemption on the ground that their income is below a certain minimum, say £75 a year (para. 363).

316.  Housewives (Class III): These are married women of working age living with their husbands. An housewife who undertakes paid work as well, either under a contract of service or otherwise, will have the choice either of contributing in the ordinary way in Class 1 or Class II as the case may be, or of working as an exempt person, paying no contributions of her own

317.   Others of Working Age (Class IV). These are in the main students above 16, unmarried women engaged in domestic duties not for pay, persons of private means, and persons incapacitated by blindness or other physical infirmity without being qualified for benefits under the social insurance scheme. The last of these groups will be a diminishing one. Blindness and other physical infirmities will occur in most cases after people have had a chance of contributing under the scheme and qualifying for disability benefit. At the outset there will be a number of people who became incapacitated before the scheme began. After the scheme has been established, persons in receipt of any benefit or pension in respect of contributions in other classes will be treated as still belonging to those classes and not as in Class IV. Those incapacitated or in institutions will be subject to the special arrangements appropriate in each case. All the others in Class IV will be required to hold security cards and to pay contributions thereon unless and until they pass into another class. This security card must be produced to obtain an employment book or occupation card. Persons in Class IV will be able to apply for exemption from contributions on the ground that their total income is below a certain minimum, say £75 a year (para. 363).

318.  Below Working Age (Class V): This class will include all persons below 16 who are in full-time education, whether compulsorily or voluntarily.

  1. Retired Above Working Age (Class VI) : The minimum pensionable age for retirement on social insurance pension will be 65 for men and 60 for women, but persons who continue to work after these ages will pay contributions in the ordinary way and will be treated as belonging to Class 1 or Class II.

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