This Bill is designed to extend the period of payment of pay-related benefit from six to nine months. The Bill also empowers the Minister for Social Welfare, with the consent of the Minister for Finance, to extend by Order the duration of payment for a further period not exceeding three months.
The proposals in the Bill represent a further advance in the social programme of the Government and are in line with the general trend of development which is desirable in our social welfare provisions. The extension of the existing pay-related scheme is important in itself and the decision of the Government to bring forward these proposals after the first year of operation of the scheme is a reflection of their satisfaction with its general effectiveness.
The Bill contains provisions of a somewhat technical nature which amend existing legislation in relation to pay-related benefit and may on that account be difficult to follow. The explanatory memorandum circulated with the Bill is aimed at clarifying these provisions and I hope that Senators will have been helped by it in their examination of the proposals.
I have previously given details of the pay-related benefit scheme but I will take this opportunity, for the information of Senators, to recall briefly the main features of the scheme. The scheme results from the Social Welfare (Pay-Related Benefit) Act, 1973, and was introduced in April, 1974. Pay-related benefit is payable as a supplement to disability benefit, occupational injury benefit (if the claimant is otherwise entitled to disability benefit) and maternity allowance, for up to 24½ weeks of incapacity for work.
It also supplements unemployment benefit for up to 24½ weeks of unemployment. There is a waiting period of two weeks which includes the three waiting days for flat-rate benefit. The maximum period of 24½ weeks of payment thus terminates at the end of 26 weeks of payment of the flat-rate benefit. The weekly rate of pay-related benefit payable is 40 per cent of the amount by which the person's reckonable weekly earnings exceed £14 but do not exceed an upper limit of £50.
The main reason for the introduction of pay-related benefit was, of course, to make better provision against the loss of income suffered by insured persons and their families during periods of sickness or unemployment than could be provided by the system of flat-rate benefits. Although the flat-rate benefits had been regularly improved over the years they were not flexible enough to provide adequately for the different needs of persons who, when working, had not the same levels of earnings and, as a result, had widely differing financial commitments.
When the scheme was introduced, a period of 147 days during which pay-related benefit would be paid was considered appropriate—subject to review in the light of experience—for the purpose of bridging the gap until in the normal course an unemployed or sick worker again resumed employment. It is, of course, true that a spell of disability or illness may last for more than the six-month period covered by the provisions of the original Act.
Equally, the period during which a worker remains unemployed may, unfortunately prove, in many cases, to be longer than that which would normally obtain. Moreover, the date on which pay-related benefit ceases under existing provisions may now coincide for many recipients, with a reduction in the standard rate of unemployment benefit to the reduced rate which may be payable for the second 26 weeks of a period of interruption of employment.
I am extremely concerned by the fact that the substantial fall in cash income which results for persons in the circumstances which I have mentioned may undoubtedly sharply accentuate the difficulties, and indeed hardship, which ensue for the families of very many unemployed workers. To help workers and their families, therefore, to maintain a reasonable standard of living during periods of interruption of employment, I propose to extend by 78 days, from 147 to 225 days, the period during which pay-related benefit may be paid. This extension of the period of payment will of course apply both to periods of unemployment and to periods of incapacity for work.
I must emphasise that this proposal is not intended simply as an emergency measure to meet the current abnormal employment position. It is, as I have said, a logical and necessary development of the social welfare system. I made it clear, in introducing the Estimate for my Department in Dáil Éireann last year, that adjustments to the pay-related scheme would be made as indicated by experience.
I am satisfied that when economic conditions generally become more favourable, there will continue to be a substantial number of cases in which payment of pay-related benefit over the extended period proposed would be necessary to mitigate hardship, for example, in the case of families where the breadwinner suffers a prolonged spell of illness. This proposal and the other proposals in the Bill will come into operation at an early date which will be fixed by Ministerial Order.
As I have indicated earlier, the weekly rate of pay-related benefit payable at present is 40 per cent of the part of a claimant's reckonable weekly earnings which lies between £14 and the upper limit of £50. The rate which will be payable in respect of the proposed additional period of 78 days will be 30 per cent of reckonable earnings between £14 and £50. This will mean an addition of up to £10.80 a week in payments for unemployment and disability during the extended period.
Pay-related benefit is payable only for days for which flat-rate benefit is also payable and may not, at present, be paid beyond the 159th day of unemployment or incapacity for work in a period of interruption of employment. These 159 days include the initial 12 waiting days. At an early stage in the operation of the scheme a difficulty came to light in the case of persons who were suspended from, or disqualified for, the flat-rate benefit for some days in that period. During such suspension or disqualification pay-related benefit would not of course be payable, because flat-rate benefit was not payable. Because of the bar on payment beyond the 159th day of incapacity or unemployment, a person in the circumstances I have outlined could not get the full 147 days of pay-related benefit. To deal with this problem, provision was made in the Social Welfare (No. 2) Act, 1974 that days of incapacity or unemployment in respect of which a person did not receive payment of flat-rate benefit because of suspension or disqualification would not be taken into account. Now that the period of entitlement to pay-related benefit is being extended, similar provision is being made in the Bill in relation to the extended period of entitlement to pay-related benefit.
In providing for an extension of the duration of the period for which pay-related benefit will be payable a particular problem arises in the case of persons whose period of interruption of employment is continuing and who have already exhausted their entitlement to pay-related benefit. I have given special consideration to the possibility of helping such persons. In the absence of a special provision to cater for these cases, a person might receive little or no immediate benefit from the proposed extension of the period of payment. To take an example: immediately before the proposed extension comes into operation, a man may have been unemployed for 230 days. When the extension of the period of payment of pay-related benefit comes into effect pay-related benefit will be payable up to the 237th day of unemployment and the man in question would therefore get pay-related benefit for only 7 days.
To help persons in this or similar types of situation a provision has been included in the Bill the effect of which will be that where a person has been unemployed for not less than 159 days and has received pay-related benefit, he may, if the period of interruption of employment continues on or after the commencement date, receive pay-related benefit for up to 78 days, provided the total number of days of unemployment in the period of interruption of employment does not exceed 315 days, that is, the maximum period, including 3 waiting days, during which a person may be paid flat-rate unemployment benefit. The Bill includes a similar transitional provision to cover days of incapacity for work.
The cost of the pay-related benefit scheme is borne by contributions from employers and employees and the annual cost of extending the period of payment by 78 days as proposed is estimated to be in the region of £1.8 million. At a lower level of unemployment, the cost would, of course, be less. It is expected that the existing contribution income will be sufficient to meet the cost of the improvement and it is not therefore proposed to increase the existing contribution rate.
The Bill also includes a provision to empower the Minister for Social Welfare, with the consent of the Minister for Finance, to extend by order the duration of pay-related benefit for a further period not exceeding 78 days, and to determine the weekly rate at which pay-related benefit may be paid in respect of such extended period.
This power will enable the Minister to effect speedily further improvements in the pay-related benefit scheme in the light of experience and in line with social requirements. Thus, the scheme will acquire a most valuable element of flexibility.
The further extension by order of the duration of payment of pay-related benefit is, however, subject to the condition that a person shall not be entitled by virtue of any such order to receive pay-related benefit after the 315th day of unemployment or incapacity for work in any period of interruption of employment. Any such order must be laid before each House of the Oireachtas and may be annulled by either House within the next 21 sitting days.
I have spoken at some length about the technicalities of this Bill and this is of course unavoidable. I want now to turn to a brief consideration of the working of the pay-related benefit scheme. After just one year of operation, it can be stated without fear of contradiction that it has proved to be of great significance for very many families afflicted by the hardship occasioned by the illness or unemployment of the breadwinner.
In the past year we have seen a most difficult economic situation and a continuing high level of unemployment. This has happened in a period of unprecedented inflation, the impact of which is clear and harmful. Beyond all its economic ill-effects inflation tends to make inequalities worse and it bears most harshly on the poor and on the various deprived groups in the community. It can bear in this way on those who are unemployed, and on their families.
The average worker in this country spends what he earns each week on his wife and family, seeking to provide a reasonable standard of living for them. Very few of them are able to put by money week by week, especially in a period of high and continuing inflation. If that worker is hit by unemployment, as so many are now hit in our country, then his family is at once confronted with very severe difficulties. In these circumstances a family may easily go into debt. Over the years I have seen many people unemployed through no fault of their own for prolonged periods. I have seen them, and their families, put into the category of the poverty stricken from the beginning. This poverty could last for a very long time even after re-entering employment while efforts were made to repay debts built up during unemployment.
The pay-related benefit scheme does not give the average unemployed man more that he would get if he were at work but it keeps his head above water. It can keep the family in reasonable comfort during a period of unemployment, up to six months at present and subject to the provisions of this Bill for the longer period proposed. It can also save them from the distress of living in debt for perhaps two or three years after resuming employment, and I have known such cases.
It is the purpose of all income-maintenance payments to cushion a person to the fullest extent possible if he becomes unemployed or ill. I believe that the benefits provided under the pay-related scheme do much to achieve this stated purpose, particularly since the scheme makes good some of the defects of the flat-rate system which represented far too low a proportion of the earnings of those on reasonable good wages. Let me give one or two examples of the working of the pay-related scheme.
I will take the case of a man, his wife and two children, at various levels of reckonable earnings. I should point out that reckonable earnings are at present related to the fiscal year 1973-74. At £20 a week reckonable earnings, which is equivalent to a rate of perhaps £27 today, flat-rate benefit would be £20.80 and no pay-related element would be payable because of the wage-stop which means that the total of flat-rate plus pay-related benefit cannot exceed earnings, unless flat-rate of itself is higher.
At £30 a week reckonable earnings —equivalent to about £39 now—flat-rate would be £20.80 and the total benefit, including pay-related, would be £27.20, or 91 per cent of reckonable earnings. That is about 70 per cent of the current wage level. At £40 a week—equivalent to £51 or thereabout—the total benefit payable, including pay-related, amounts to £31.20. This is equivalent to 78 per cent of reckonable earnings or 61 per cent of the current wage level. At £50 a week—equivalent to £63 now—the total benefit figure, including pay-related amounts to £35.20. The percentage equivalent amounts to 70 per cent of reckonable earnings or 56 per cent of the present wage figure.
It should be remembered that the average weekly earnings figure for male workers in manufacturing industries in the September quarter of 1974 was in excess of £43 a week. This figure will have been raised to at least £49 at present, through the working of national wage agreements.
I believe that these few examples show that the scheme has proved to be a real support for many families which would have been in serious distress in the past year and that this fact is its justification. The introduction last year of the pay-related benefit scheme was a significant development in our social welfare code. It represented this country's first undertaking in the field of pay-related benefits, which are an established and internationally-accepted feature of highly developed social security systems.
As Senators are aware, the Government have decided to publish a discussion document on pensions which will indicate the various issues connected with the introduction of a national income-related pension scheme. This may be seen as a logical and highly-desirable direction in which to extend the application of the pay-related principle.
When speaking in this House on the Second Stage of the Social Welfare Bill, 1975, I referred to some aspects of the financing of our social services. I wish to say a few further words today on this matter.
Total expenditure this year on social welfare and health will amount to more than £500 million, of which the Exchequer will provide approximately £380 million from general taxation. Expenditure has increased by well over 100 per cent since 1973. While this represents significant expansion and improvement in the social services, there can be no doubt that the question of financing now raises a number of important issues.
It is necessary to ensure that the best return in terms of real social service is obtained for such high and increasing levels of public expenditure. There is a need to keep all schemes and every category of welfare payment under review to guarantee that they are meeting their stated objectives. We must take the necessary steps to direct scarce funds to areas of real need and to the relief and eradication of particular, hardcore problems. We must look critically at the effects of what we are doing, a task which calls for planned research.
Those who ultimately foot the bill have a very real interest in the question of the effectiveness of the system and, particularly, in the method of financing.
I am concerned to see that research in relation to social welfare should be directed to practical goals and that it should make a contribution to policy review and evolution. The establishment of the research and development section within my Department will provide a focus for such work and for appropriate contact with the various institutions of social and economic research.
I am pleased that the research element of the work programme of the national committee on pilot schemes to combat poverty will place a considerable emphasis on the adequacy and effectiveness of various aspects of our social services. This programme will contribute in a most practical manner to the effectiveness of policy in the future.
I have referred on more than one occasion to the inherent difficulties which arise from the traditional methods of financing the social services in this country. By far the greatest proportion of this finance is derived from the Exchequer. Only Denmark of the EEC Member states has a higher proportion of state financing.
In this country a high proportion of public finance arises from indirect taxation which, of its nature, tends to be regressive. In the case of employer and employee contributions, the great bulk is in the form of flat-rate weekly payments. Such payments can constitute a significant burden in the case of lower-paid workers, and I am aware of the particular situation of women workers whose average earnings are lower than those of men and who traditionally pay a stamp contribution only a few pence below that for a man.
As Senators are aware, the Tánaiste has initiated a fundamental review of all aspects of the financing of the social services in relation to both health and social welfare. I am hopeful that it will soon prove possible to bring about a more equitable and rational approach to this central aspect of the system. What must be stressed is the need to bring about changes which respond both to the needs of those who must pay and to the needs of those who will benefit from the whole range of services. This is a matter for planning, and not for hasty or ad hoc decision.
In considering an extension of the pay-related benefit scheme, the question of the working of the pay-related contribution principle must arise. This approach is clearly more equitable and progressive than flat-rate contribution. Its extension to other areas of the system, including pensions, would give rise to consideration of matters such as its relationship to benefits for the lower paid, the fixing of appropriate contribution ceilings and the special problems of those who are not covered by the PAYE tax collection system.
I have referred on other occasions to certain criticisms of the pay-related benefit scheme. I do not intend to add to my previous comments on the prevalence of ill-informed criticism claiming that benefits are too generous. Suffice it to say that such generalised contentions have not been proved to be of substance in any significant number of cases. It is most unfortunate that attempts to promote a particular interest should be made in such a way as to reflect on many decent men and women who are in receipt of benefits which are their right.
The proposals in this Bill will strengthen and bring to a higher stage of development the scheme which commenced last year and I am pleased to recommend the Bill for the favourable consideration of Seanad Éireann.
