Joint Committee on Social Protection, Community and Rural Development and the Islands díospóireacht -
Wednesday, 19 Apr 2023

Pay-related Jobseeker's Benefit Scheme: Discussion

An Cathaoirleach

Apologies have been received from Deputy Kerrane. I congratulate my constituency colleague, who is now a former member of the committee. We have not yet received formal notification but I thank her for her work and the very active role she played on the committee through the past two years. She is going on to the greener fields of the agriculture portfolio. I wish her well in that role.

Members who are participating remotely are required to be within the precincts of Leinster House. I ask members and witnesses to please turn off their mobile phones or ensure they are on silent mode. I ask members participating remotely to please use the raise hand function on Teams if they wish to contribute.

We are meeting to discuss the implementation of the pay-related jobseeker's benefit straw man report from the perspective of the Department of Social Protection. The Minister for Social Protection published the straw man proposals last year. These set out the broad parameters of an approach in respect of this topic. A straw man report is an illustrative working model used to stimulate discussion on a topic, providing a focal point for submissions in response to the illustrative model and generally assisting with consideration by those who would be impacted by the policy change.

As members will know, the main rationale for pay-related benefits is that people falling out of employment and claiming unemployment supports often do so with established financial and other commitments. As a result, they often face a sudden drop in income in the immediate aftermath of the loss of employment. At present, the maximum amount a person on jobseeker's allowance can receive is €220 per week, with additional allowances given for adult or child dependents, depending on means. Having regard to the pay-related systems that are common across Europe, the straw man consultation paper published in December last year sets out a possible model of reform for consideration. It is proposed to provide a more effective cushion from the income shock for those who fall into unemployment. While the straw man primarily focuses on jobseeker's payments, feedback is also being sought to inform consideration of potential changes to other short-term schemes such as parent's benefit and illness benefit.

From the Department of Social Protection, I welcome Mr. Rónán Hession, assistant secretary of working age income supports, Mr. Eamonn Phelan, principal officer, jobseekers and farm assist policy, and Ms Karen Byrne, assistant principal with responsibility for jobseekers and farm assist policy.

Before we begin, I wish to explain some limitations to parliamentary privilege, and the practice of the Houses with regard to references the witnesses may make to other persons in their evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected, pursuant to both the Constitution and statute, by absolute privilege. Witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity, by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if the witnesses' statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that witnesses comply with any such direction. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise, or make charges against a person inside or outside the House or an official, by name or in such a way as to make him or her identifiable.

I call on Mr. Hession to make his opening statement.

Mr. Rónán Hession

I thank the committee for the opportunity to appear before it today to discuss the straw man proposal for a new pay-related jobseeker’s benefit. I am the assistant secretary general of the Department of Social Protection with responsibility for working age-income supports. I am joined by Eamonn Phelan and Karen Byrne.

The Minister published the straw man proposal in December. The proposal sets out the broad parameters of one potential approach to pay-related jobseeker's benefit; it is not a final design. Its purpose is to frame a constructive discussion and elicit feedback through a national public consultation process with stakeholders. The design of any proposal that may be brought to Government may differ significantly from that set out in the straw man consultation paper.

The main rationale for pay-related benefits is that people entering unemployment often do so with established financial and other commitments. Therefore, it is appropriate to provide a short-term cushion against income shocks while a person seeks new employment and adjusts their outgoings in the immediate aftermath of a job loss.

There are more than 32,600 people on jobseeker’s benefit, with the scheme costing €475 million in 2022. While for many people the scheme offers important income support during periods of unemployment or when working on a casual or part-time basis, it is not without its limitations. This became particularly clear during the pandemic when it was necessary to introduce the pandemic unemployment payment to cushion the income shock of employment lost because of necessary public health restrictions.

Reflecting o these points, and having regard to the pay-related systems that are common across Europe, the straw man sets out a possible model of reform for consideration. The straw man proposes that: for people who have been in insurable employment for at least five years, the benefit would be set at 60% of prior gross income up to a maximum payment of €450 per week; and for people who have been in insurable employment for at least two years but fewer than five years, the benefit would be set at 50% of prior gross income, subject to a maximum payment of €300 per week. In addition, a person must have had a strong attachment to the labour force, with at least 26 paid contributions in the 12 months immediately prior to making a claim, and four weeks of employment in the ten weeks prior to claiming.

It is proposed that payment duration would be limited to a maximum of six months. The current average duration of jobseeker’s benefit is 11 weeks - it can go up to 13 or 14 weeks - with more than 70% of customers exiting the scheme within six months. As with the pandemic unemployment payment, pay-related benefit would be for employees who become fully unemployed only. Those working part-time or on a casual basis would continue to be eligible for the jobseeker’s benefit scheme or other schemes such as the working family payment. Self-employed people would continue to be catered for under the current jobseeker’s benefit self-employed scheme, which was introduced in 2019.

While the straw man primarily focuses on job seekers, feedback will also help to inform the consideration of potential changes to other short-term schemes, such as parent’s benefit and illness benefit. The straw man also sets out initial high-level proposals for a working-age payment. This would be a means-tested jobseeker payment that includes casual or part-time work arrangements and that is based on the working family payment model.

As part of the consultation process, the Department hosted a public stakeholder event in Dublin on 10 February at which presentations were delivered by the Department, the Organisation for Economic Co-operation and Development, OECD, and the Economic and Social Research Institute, ESRI. The deadline for written submissions was 28 February. More than 80 submissions have been received from individuals, with a further 32 submissions from stakeholder groups. All feedback received is being collated and analysed by the Department. It will be used to inform the design of whatever proposals are brought to Government for decision.

The straw man is an important policy proposal. It follows from the programme for Government commitment to consider increasing all classes of PRSI over time to replenish the Social Insurance Fund to help pay for measures and changes to be agreed, including pay-related jobseeker’s benefit. In addition, the Government’s Economic Recovery Plan 2021 and Pathways to Work 2021–2025 include commitments to draw on the lessons of the pandemic in bringing forward proposals for pay-related jobseeker’s benefit.

In designing a new pay-related benefit, we have to be careful to balance the need to provide income supports while also maintaining work incentives. We must also be mindful of costs and impacts across the wider economy. The inputs we have received as part of the straw man consultation are an important part of this deliberative process. We look forward to hearing the committee’s views and we are happy to assist members with any questions they have.

An Cathaoirleach

I thank Mr. Hession.

Deputy Éamon Ó Cuív

It is a very interesting proposal. There are a number of details I would like Mr. Hession will clarify or comment on. Those of us who work our constituency clinics assiduously find that there can be a great concept but with details in it that are very much at variance with the reality of lived lives. At the bottom of page 2 of the initial document, it is stated that in order to qualify, a person would have to have six months' paid contributions in the 12 months prior to the claim. This seems to say that if a person was out on illness benefit in the 12 months prior, he or she would not be entitled to pay-related jobseeker's benefit. That seems unfair. When a person is made unemployed, it is not within their control. When a person gets ill, it is not within their control either. That is my first point.

Perhaps Mr. Hession could clarify the position regarding my second point. I read the proposal carefully but I am not completely sure about one aspect. It states that pay-related jobseeker's benefit would last for six months. Does this mean that eligibility for jobseeker's benefit will be reduced from nine months to six months or is it that only pay-related benefit will last for six months? Maybe Mr. Hession will clarify the position in that regard?

Mr. Rónán Hession

The short answer is "Yes". It is a reduction from nine months to six months

Deputy Éamon Ó Cuív

When I read through the proposal, I thought "Hang on a second." Many people are either in partnerships or couples, and this means that they are not entitled to jobseeker's allowance. This is an increasing phenomenon of unemployment at the moment when one person comes out of employment. They would have needed two incomes to survive, to pay mortgages, to put the kids through school and do all of the other things they need to do. When one of the couple becomes unemployed they get jobseeker's benefit because that is not means tested but the minute that is over it is game over. They cannot go on community employment schemes and they receive no payment whatsoever. If asked myself what I would do if I was faced with somebody's partner who is in this situation coming to visit me at my constituency office. I also asked myself whether we would be better off giving them six months' pay-related benefit - their income would then fall off a cliff into the abyss - or just doing the simple thing, namely, giving them jobseeker's benefit for 12 months, as used to be the case. The committee must consider the answer to that question. I hope Mr. Hession will also consider that as well.

There always seems to be means testing of non-contributory pensions. If a person is in employment, he or she can earn €200 per week. If a person is self-employed, however, he or she cannot earn anything without being means tested.

There seems to be a kind of allergy to self-employment in the Department. On the second page of the document we had, it stated that this scheme would not be open to the self-employed. It gives two reasons. The first is the lower contribution paid by the self-employed. I accept that. That issue should have been addressed years ago. Once we started to introduce a whole lot of benefits for the self-employed, it would have been reasonable for them to pay more PRSI. It would be fantastic value to the self-employed even in its crudest form, with just the State pension available. On an actuarial basis, it is better value than the employer-employee contribution. In the context of the pension age, we have already discussed the fact that the self-employed contribution will have to go up. If we lived in a world where things were joined up, we would say that, if a given self-employed element was to be covered, a rise in the self-employed contribution would be required, whether that be 0.5%, 0.6%, 0.639% or some other figure.

The second reason given was that the Department does not know how much income the self-employed earn. However, self-employed persons have to make a tax return. If they had to make a tax return for the previous year to be eligible for this scheme, so be it. I do not think that would be a very big cost for those who suddenly find themselves unemployed having been self-employed, which was the case for many during the downturn. Again, it comes back to the issue of jobseeker's allowance and jobseeker's benefit because many such people will have partners who are working and are not entitled to jobseeker's allowance.

It is also stated in the document that extending the scheme to nine months could cost 50% more. Of course, this implies that everybody who goes six months will go nine months. However, the document then stated, as the witnesses have just reiterated, that people begin to drop off at 11 weeks. That is my understanding. The document stated that 70% of jobseeker's benefit recipients exit the scheme within six months, so you are actually only dealing with 30% after six months. That is at the threshold of six months and many of those 30% then fall off between six and nine months. In fact, it is my understanding that, once a year is over, a very high percentage are back in employment. It therefore seems that keeping it at the nine months would not be that expensive. It certainly would not be as expensive as this document says it would be. Those are just points I picked up on when I read this document. It is useful and the concept is interesting but the big overarching question is whether to shorten and increase or to lengthen and keep flat. For an awful lot of people, payment for a longer period would actually be better because an awful lot of people have partners who work.

Mr. Rónán Hession

I thank the Deputy for those questions. When I was here before to discuss issues in respect of disability - I believe that discussion was with this committee - I was asked about the pay-related benefit and the straw man. At the time, I characterised it as being a bit like going to IKEA and seeing a mock-up of an apartment. If you ask people what they would like in an apartment, it is very hard to answer because there are too many variables. Sometimes the easiest thing is to show them what an apartment would look like but to allow everything to be customised. That is effectively what a straw man proposal is. You set out one version of what a pay-related jobseeker's benefit scheme would look like. Exactly as Deputy Ó Cuív said, each of these variables can be changed. Every change will have an effect, whether on cost, behaviour or coverage. The purpose of the straw man proposal is to get people's views on precisely the questions the Deputy is raising, for example, whether it is better to have a lower payment for longer or a higher payment for a shorter period, and to determine the implications of any such course of action. These are exactly the kind of views we are looking to draw out.

With regard to the Deputy's first question, which related to illness benefit, although it also applies to things like paternity benefit, just as the taps in an IKEA mock-up do not necessarily work when you turn them on because they are not fully plumbed, a later iteration would have to look at how this would connect with the wider social welfare system. However, it would not be our intention for people to fail those contribution tests as a result of availing of another scheme. We would intend to capture such people in further refinements of any proposal like this one.

On the six-month duration and the costings, we have some preliminary modelling, which is reflected in the costings. They are really just indicative. We have not simply just looked at numbers. We have also looked at behaviours around durations after six months and up to nine months. We went back to 2019 figures, that is, to pre-pandemic figures, to try to get a sense of those costings. There is a behavioural aspect. Not everyone will necessarily stay for the full duration. In fact, the experience is that, on average, most people are gone within the first three months or so.

With regard to partners, we know that 90% of people who are in receipt of jobseeker's benefit are on the personal rate. In other words, 90% are not claiming for dependants. The current system is already pay-related in the sense that there are bands, although 85% of people are in the top band so the bands are not all that meaningful. It is also based on family composition with provision for qualified adults and qualified children although 90% of people just claim for themselves. On that basis, the Deputy is right that, after six months, people would reach the end of their benefit if they were still on the payment. At that stage, they would move to the means-tested schemes. As with all means-tested schemes, if there is other income or supports in the house, those would affect their treatment under the means test.

On the issue of self-employment, again, all of this is customisable. However, I will just say that jobseeker's benefit for the self-employed is a relatively recent scheme, having been introduced in 2019. We do not have the real-time information we have in respect of jobseeker's benefit for employees. That is pay related in a banded way whereas jobseeker's benefit for the self-employed is not. You have to be fully unemployed to avail of it. We do not have real-time look-up capabilities. That was one of the issues we came across with the pandemic unemployment payment, PUP. There is a lag in reporting with regard to self-employed income whereas, in the case of pay-related benefits, we look back three months and then 12 months before that so we have a good picture of a person's income over a year, including any variations over the course of that year. We have good information for such claimants but we do not have that for self-employed claimants. Those who combine employment with self-employment represent another cohort we have yet to crack. It was especially complex to calculate such claimants' income for PUP.

As I said, the scheme design is at a level that allows us to paint a picture and get views on any design questions within it. Exactly as Deputy Ó Cuív said, these are customisable. Ultimately, the cost of the programme for Government commitment is being met by PRSI contributions rather than Exchequer funding. To some extent, it is a question of determining the right balance between benefit and contribution rate but the changes to the contribution rate that would be necessary to meet these costs are not enormous.

Deputy Éamon Ó Cuív

I will make one comment. As we know, lots of people are in relationships and do not have children. Many more people have children later in life than would have before. The measure of not having a dependant for the purposes of jobseeker's benefit is a kind of null set. It is invalid because claimants who have a working partner and no dependant children will not show up as having a dependant because the partner will have his or her own income and you cannot claim for a working partner. It does not tell us how many of the claimants who have no dependents have partners who are working. A large number of people live in relationships. Any casual observation in a clinic would tell you that.

It is the relationship that counts here. Therefore, a huge number of people would be excluded or would lose their payment very early under this. I would not like to be sitting in a clinic answering questions about why we had cut it to a six-month period rather than extend it to a year. While it is true there would be a short-term benefit for someone on jobseeker's benefit, nobody knows that when they go onto the benefit.

An Cathaoirleach

In respect of Deputy Ó Cuív's question about the 50% increase from six months to nine months, I am confused by Mr. Hession's answer. I did not understand how he could claim it would be 50% more expensive to go from six months to nine months. What is the mathematical basis for that?

Mr. Rónán Hession

I do not have the detailed costings on that in front of me, but what we have done within the Department is model different durations based on the 2019 figures. There are exit rates and we have tried to base it on what the exit rates were in 2019. Obviously, jobseeker's benefit at present lasts nine months and we have good visibility over the duration of a nine-month claim. We ran models around that and that was the cost differential. There is a mix of things. Those who would otherwise come off a payment at six months are continuing beyond it and there is also perhaps some effect on the duration of claims, whereby short claims go on a bit longer. There are also other effects with other schemes and their interplay. There is a complex range of factors but we can give the committee a note on it if it would be helpful.

An Cathaoirleach

Yes, we would appreciate that. It just does not seem to stack up. There would also be a cost arising from those people under the means threshold who would end up getting the jobseeker's allowance as well. It seems to be an astronomical number to extend it for a further three months and it runs contrary to the evidence Mr. Hession gave to the committee earlier. If he could provide us with a detailed note explaining it, we would appreciate that.

Deputy Éamon Ó Cuív

The word "potentially" was used but this would have to apply to everybody. For the example of the difference between six months and nine months, everybody would have to stay on jobseeker's benefit for the nine months.

An Cathaoirleach

That would not make sense because it would misrepresent the strawman if that was the case. It would undermine the purpose of a strawman if that was the basis for it.

Deputy Éamon Ó Cuív

Yes, but there is mathematical potential for it, and the word "potentially" was carefully put in. My reading of it was that the next sentence had been forgotten and that, theoretically, potentially, there would be a cost. Fifty percent of six months is three months, and if we add that to the period, that presumes everybody will stay for the final three months.

An Cathaoirleach

I am sure that is not the basis for it but we will get the mathematics on it.

Deputy Paul Donnelly

I thank our guests for the presentation. The previous question is very important. It does not seem as though the figures add up. I would like to see them to examine how the Department’s statement stacks up to the suggestion it will cost 50% more, given an awful lot more people who have been admitted will be exiting well before six months. Another part I am always conscious of is that every time something like this is proposed, there seems to be a reduction in the timeline. Previously, the period was 12 months, it was then reduced to nine months, and now it has been reduced to six months but with a few quid more. I am always wary of situations such as this where people who are on the margins or are struggling are faced with what was previously a full 12 months being reduced over a period to six months. I certainly would not like to see that happen. It would be a retrograde step in the provision of protection for people who are in a difficult, vulnerable and stressful position. I am concerned about it.

There was a reference to the proposal for a ceiling but we have not talked about the other, lower end. Where would be the floor in respect of the payments that would come where people fall below a certain level of income? We would certainly look at the minimum essential standard of living to protect people from poverty. Workers who lose their job will get 60% of their previous income. How was that figure arrived at? Why not 70% or 80%? Is it an international standard?

Mr. Hession discussed illness benefit. Will he elaborate on that? Sinn Féin has published a submission as part of it, so I look forward to that being considered.

Mr. Rónán Hession

I note the Deputy's points on the duration. The reduction from nine to six months is one of the important changes in what the strawman sets out compared with the current system. We are also mindful of the point the likes of the ESRI and the Commission on Taxation and Welfare made about any change in duration needing to factor in the change in work incentive when a payment is increased from €220 to €450, so we were trying to take on board some of those points.

The Deputy asked about the floor. At the moment, the floor for jobseeker's benefit is €98.70, whereas in the strawman it is €100.

On the 60% of income figure, the standard varies around Europe but 60% is in the sort of mid-range. It will give a result whereby the €450 figure, under the figures set out at the time of the creation of the strawman, comes in at about 50% of the gross industrial wage. At the lower rate, €300, it is about 33%.

As for illness benefit, the programme for Government commitment refers to increasing PRSI in all classes to provide additional benefits, so whatever lessons we get from pay-related benefit and experience will inform the Government in looking at other pay-related systems. The same sorts of rules and principles apply, whether it is maternity benefit or illness benefit, where somebody suffers a short-term income shock, having been in work and leaving it suddenly. We will draw on the lessons there. To return to the point Deputy Ó Cuív made earlier, we have not at this stage gone through all the finer points of the interplay with the wider system, but we will not look to discount time on illness benefit or maternity benefit whereby it would prevent the person from qualifying. That certainly would not be our intention.

Deputy Paul Donnelly

Mr. Hession made a point about incentives or disincentives to work. Every time there is a recession and people are made unemployed, there is almost an assumption people do not want to work, whereas all the evidence proves that when there are plenty of jobs, we reach full employment quickly. I am conscious that when we are talking about social protection, we always refer to incentives or disincentives to work. People do not need an incentive to work; they want to work. That language needs to be used more carefully. People want to work and all the evidence proves people will want to work when good employment is put in front of them. I am wary of that type of language.

Mr. Rónán Hession

We try to use that language carefully. In the international literature, that is the way it is discussed, as it is in the commentary we had on the pay-related benefit from the ESRI and the Commission on Taxation and Welfare. I was trying to reiterate faithfully the point that was being made to us. International literature shows that replacement rates do have an influence on decision-making, but I agree that our overall experience dealing with jobseeker's benefit is that people do want to work. We saw that with the pandemic unemployment payment, PUP, where even in cases where people had replacement rates above 100%, that is, they were earning more on the PUP than when they were working, they still went back to work quickly when the country reopened. We do not mean it in a pejorative way but, obviously, people make intelligent decisions for their families.

We have had good engagement with experts in the OECD about their international experience. In some cases, there is a positive work outcome where there is a higher payment. People take a little bit longer to go back to work, but they get a job that is a better match for their skills. A high-skill person does not panic due to a shortage of income and go back and take a lower-skilled job, which is worse overall for the labour market. Then we get better job matching, which is ultimately enriching for the labour market. That is certainly drawn out in the literature.

Deputy Paul Donnelly

That proves the point. When we are talking about the longer time people should be given, it seems the evidence is proving if people have a bit more time they end up in better circumstances. It makes the argument much stronger to go from six to nine months. In some ways what the officials are stating is the evidence is showing that despite what international documents state around incentives to work, the evidence is not there to prove that language should be used. Maybe we should stop using that type of language if there is no evidence to provide proof around an incentive or disincentive to work.

An Cathaoirleach

I have a question related to that for Mr. Hession. Has the Department examined the impact on the back to education allowance and the impact of the change from 12 to nine months on the uptake of that allowance at the time? As he rightly said, we want people to get back into paid employment, but at their capacity level. For people who fall out of employment, getting access to education or retraining can be vital for getting back to a certain level of income again. However, at the moment they can only claim that for a maximum of nine months before they go onto the means-tested payment, so unless their employment happens to fall in line with the academic year it is of little benefit to them. It was previously 12 months. Has there been an impact with it being brought back to nine months? Could there be a reciprocal impact from reducing that to six months? Has that been looked at?

Mr. Rónán Hession

In the context of the PRB we have not, as I said, at this point gone through a read-through of the other social welfare schemes in that way. It is an interesting point and we will certainly examine that. What we see with jobseeker's benefit is even at nine months, it is still quite a short-term scheme for most people. Even with the duration that is there, 70% of people are done on the scheme in the first six months and average durations are three months. Thus, there is a huge churn on jobseeker's benefit. A certain number of people then go on. On the longer-term need for training, we will of course have to look not only at training but at the public employment service and the Intreo support we give to people. We will have to look at all that, because this is a very big change; it is a level shift for the system. To some extent, there is a limit to how much we can put into a straw man proposal in terms of enough detail that people have an informed view of what it could look like without trying to get into too much scheme design and technical detail.

Deputy Joan Collins

I generally agree with the notion of 60%, or whatever, of a person's income because it protects people from a cliff edge, especially if he or she has expenditure responsibilities. However, there are issues with it and I wish to raise some of them. Maybe some of them will dovetail with what has been said. The main problems are it is a two-tier system, the duration of the payment, the maximum payments, decreases for some from current jobseeker's rates and funding.

On the two-tier system, two years of contributions versus five years risks penalising young workers and women, as well as other marginalised groups such as workers with disabilities and migrant workers. There seems to be a marginal difference in the two categories and no need to differentiate.

The duration of the payment has been raised. Lowering existing jobseeker's duration to a flat six months would make it much lower than European counterparts. I think it is 24 months in France and the Netherlands, 18 months in Finland and 12 months in Germany. Crucially, the payment does not return to the pre-2008 crash duration of 15 months.

On the maximum payments, we are not in line with European counterparts at all. In Denmark; it is 90% of prior earnings; in Finland, 84% of average wage; in Luxembourg and Sweden, it is 80%; and in France and the Netherlands, it is up to 75%. The new proposal would be 50% of the basic payment for two years and 60% of enhanced payment for five years, which is well below the comparable European rates.

On the decreases in payment, research by the Irish National Organisation of the Unemployed, INOU, shows certain workers would be worse off under this proposal than the current scheme if they were to become unemployed. This would especially be the case for low-paid or low-hour workers. The INOU stated:

On the income front [it] is particularly concerned for people who work in low paid employment, employment where the hours worked may vary from week to week, leading to an uncertainty of income on a weekly basis. In some cases the person making the claim may well be better off seeking to access an alternative payment, for example Jobseeker’s Allowance or a One Parent Family Payment. However, these payments are means tested, have a range of qualifying conditions and are not automatically open to people who may apply for them.

On the funding, the proposal seeks to fund the new scheme by raising PRSI contributions for both employees and employers. This is in the context of the extremely low rates of employer PRSI contribution we have in Ireland. In France, it is 32% and in Sweden, it is 28%. We have discussed this before with respect to pensions and other issues. In Austria, it is 23% and in the EU peer group, it is 21%. In Belgium it is 21%, in Finland it is 18% and here it is only 9.6%. SIPTU estimates raising employer PRSI contributions from 9.6% to 10% would pay for the entire scheme and still leave Ireland at the bottom of its peer group for employer payroll and social insurance contributions.

I would like the officials' thinking on some of those points. I will summarise the questions. Why is the duration of payment less than many of our European counterparts? Why are we not returning to the pre-2008 payment duration of 15 months or at least SIPTU's recommendation of nine months of payment with three further months of reducing payments? Why is there not a minimum payment floor to ensure people are not left worse off, as per the INOU's research? If the plan is to supplement with further benefit schemes will their be a floor indexed to standards of living? Why is the maximum threshold below European counterparts' statutory sick pay? SIPTU estimates raising employer PRSI contributions from 9.6% to 10% would pay for the entire scheme and still leave Ireland at the bottom of its peer group for employer payroll and social insurance contributions. How would the officials justify recouping costs through rises in both employee and employer PRSI contributions when Ireland's employer social insurance and payroll contributions are less than half the average rate of our EU peer group? Those are some of the thoughts we had in my office in the context of the straw man report.

Mr. Rónán Hession

I thank the Deputy. The sound was not all that clear, so I will go through what I have. I think I caught almost everything, but if there is anything I miss, she might let me know.

On the two-tier system, at the moment, those who have the two years' contributions get a six-month duration on jobseeker's benefit and for those who have the five years, it is a nine-month duration. The current system is already distinguished with respect to duration by the length of the contributions and it also pay-related in the sense that people's rate of jobseeker's benefit is related to their prior income on a banded basis. In reality, those bands have not really kept pace with developments in the labour market, so we end up with 85% of people in the top bands and the other bands are not that meaningful.

The Deputy mentioned a floor and that came up in Deputy Donnelly's contribution as well.

The floor at the moment in jobseeker's benefit is €98.70 and the floor in the PRB, in the strawman at least, is €100. In terms of duration-----

Deputy Joan Collins

An extra €1.30 will not have a huge impact on people's income. I am sorry for interrupting. That is just a comment.

Mr. Rónán Hession

That is fine. It rounds the existing floor but Deputy Collins is right that it is not a substantive increase.

In terms of the impact on women and young people, we have done some analysis internally but it needs further work. We are tracking very carefully the impact on women and young people. Our initial review of the model against the 2019 cohort is that it does not have significant skewing either for or against women or for or against young people. I know there is a concern coming through in the submissions that the exclusion of part-timers may have that effect. Our initial analysis is not showing that, but we will meet some of the stakeholders in the time ahead and we will reach out to the INOU as well because I know these are issues that have come up in its submission as well.

In terms of the PRSI, what I am saying at this stage is that this is being done under a programme for Government commitment and the intention there is that it would apply to all classes of employer and employee. The Government recently published the actuarial review of the Social Insurance Fund showing the long-term future of the fund. The intention is to bring forward a more general PRSI roadmap in the coming months, separate from the strawman, to set out where the Government thinks we should go in terms of PRSI changes.

Deputy Collins also asked a few questions about the international picture. I will ask my colleague, Mr. Phelan, to come in on that. I know he has been working a lot with the OECD on it.

Mr. Eamonn Phelan

I will just give some background on some of the durations. As members know, the durations can vary widely across different European countries and the OECD countries. For example, in Italy, it can be as low as 1.5 months. It can go to 24 months, which is dependent on the number of contributions, but it has a floor of 1.5 months' duration. The Netherlands has a floor of three months. Spain has a floor of four months and Portugal has a floor of five months. Countries like France and Germany have a similar floor of six months, which is in our PRB proposal as well. There are other durations across European countries which are similar to our own in that respect. They do increase, depending on the contributions.

Deputy Collins mentioned quite a few percentages in terms of how the benefit is calculated in other countries. There are quite high numbers mentioned for various countries, up to 80% or 90% of previous salary, but in many cases a cap is applied as well, so sometimes we see 80% or 90% of previous salary but it is subject to a cap. It is similar to the model we have tried to develop where we have taken 60% of previous salary, but it is also subject to a cap in most circumstances. Finland is the only country I am aware of among the EU and OECD countries that does not apply a cap.

Mr. Rónán Hession

What I would say overall to the Deputy is that we are trying the best we can. As almost all EU countries have pay-related systems, we have the benefit of being able to see how it is done elsewhere. The difficulty is that we can never fully transpose another system to Ireland because there are always other benefits and they come within the context of a wider system. As I said, with the strawman, there are a couple of obvious features around the replacement rate, cap, floor and duration. If those are calibrated differently, they will give different results in terms of the cost and what they feed through to in terms of PRSI. It is really a question of what is the right balance and overall blend. Reading through all the submissions and from a long-standing discussion, everyone seems to broadly agree on the need to get the right balance in supporting income without distorting work incentives. I know Deputy Donnelly does not like me using that phrase but I am just using the language of the topic. If we get the right balance, we can support people to sustain themselves for periods of unemployment and get back to work as soon as there is an opportunity to do so.

Then there is a cost element. Where people tend to disagree is on where the level is at. Even in terms of contributions, certain people want increases in employer PRSI while others say it should on the employees. Others ask whether the contribution should be changed at all. There are a variety of views around the individual factors - those different variables. That is all very helpful. The whole point of the strawman is that we want people to give us that feedback. We have had really good engagement. We will talk to the various stakeholders and report to the Government on the views we pick up. The strawman is there to try to help people make up their own mind, as opposed to saying the Government is now introducing this. It is a proposal to react to. We have got very good quality submissions and a variety of views, but also lots of insights and points we had not thought of.

An Cathaoirleach

Is Deputy Collins happy with that? Was anything missed?

Deputy Joan Collins

Yes, I am happy, thanks.

Deputy Marc Ó Cathasaigh

In the first instance, I like the strawman approach. I have stolen the IKEA metaphor on a number of occasions. It is a good way to understand the issue. It certainly helps people structure their thoughts and gives us something to respond to, or that is how I find it. I like it as an approach, as long as it is a strawman and is not an instance of false consultation. We have seen with auto-enrolment that some people who appeared before the committee were disappointed with how far it had deviated from the strawman. That shows us that the strawman is not considered to be the finished item within the Department. I like it as an approach as it helps me to set down my own thinking and gives me something to respond to.

We have spoken a good deal about the period of six months versus nine months. I know there are two issues at play here. There is a kind of contributory principle whereby we pay in PRSI and we can expect to get something back out of it. Then there is this idea of income replacement and the short-term income shock. In that context, has there been any consideration of making those two things meet and looking at a graduated approach, whereby one might spend three months on €450, a further three months on €300 and for the payment to then taper off? As Deputy O Cuív identified, it is the cliff edge that is a problem for people in many cases. It might be a way of offsetting overall costs while still preserving the length. Has that been looked at in any detail or costed?

I am sure I read it in the documentation but could the witnesses translate the €450 cap to gross income? What is the point at which we max out that cap? I know we are not talking about a six-figure salary by the time we hit the €450 cap; it is much lower than that. I think it is probably appropriate. I do not think we should be talking about income replacement rates of 60% or whatever it is to somebody who is on €250,000. It would not be reasonable for the Exchequer to do that.

The elephant in the room is really around PRSI. Mention was made of the actuarial report. We dealt with the report from the Commission on Pensions, which was going to have fairly significant PRSI implications. Auto-enrolment will have PRSI implications. This measure will have PRSI implications as well. While it honours the contributory principle, we would be asking people to pay a higher rate of PRSI. While there is a benefit to be had here, we will reach a limit to what people are prepared to stomach in terms of PRSI contributions. I would welcome some sort of indication. At one point, figures were given indicating that a 0.1% increase in class A contributions would yield €190 million. What level of a PRSI contribution increase would be needed to fund something close to the strawman we have in front of us?

Mr. Rónán Hession

I thank Deputy Ó Cathasaigh. In terms of his suggestion that we have a graduated approach, we have not looked at this in detail but we are going to do a bit of work. This is how it works in a number of other countries. People can start at a higher replacement rate and it steps down over time. We have proposed various payment rates depending on the length of the contribution history. In some countries those with a longer contribution history have a higher replacement rate. The cap might be the same and then it will taper. These are models used internationally. We have had meetings with the OECD and we are looking at some of these alternative approaches. To some extent it is all about finding the right blend. There is also complexity in this. We know from the pandemic unemployment payment where we had step-down payment rates that there is a great need for communication so that people understand what is happening. Sometimes there can be angst around these step downs. We will have to see. This was the approach used when the pandemic unemployment payment was being wound down so we have this experience.

With regard to the cap and gross income, the €450 in the straw man translates to approximately 50% of gross average earnings. I do not know whether Deputy Ó Cathasaigh has a copy of the straw man. There is a table in it. People on €45,000 get €450 under the straw man, which gives them a replacement rate of 66%. Those on €23,600 get a replacement rate which is approximately the same. Somebody on €75,000 gets a replacement rate of 46%. As we would expect, the more people earn the more the cap affects them.

Deputy Marc Ó Cathasaigh

I have read the straw man. The cap translates to close to the average industrial wage.

Mr. Rónán Hession

It is 50% of the average industrial wage. The lower cap of €300 is approximately 33% of the average industrial wage. In terms of PRSI we have not published costings. We are still working through them. It is very complex. We do not want to put out anything until we are confident of the costing. Broadly speaking, as Deputy Ó Cathasaigh picked up, in the straw man we make a change of 0.1 of a percentage point. In other words, if employee class A went from 4% to 4.1% and employer class A went from 11.05% to 11.15% it would generate €190 million. According to the rough costings we have for the straw man this would be sufficient to cover it.

Deputy Marc Ó Cathasaigh

Towards the end of the straw man there is mention of the working-age payment. As I understand it, this is coming into view because the technology is there in Revenue and the Department to enable it. If a working-age payment is brought forward would it ultimately supersede what we are speaking about? I understand it would be a much bigger piece of work. What time horizon are we speaking about for either of these schemes? When does Mr. Hession envisage it getting to the end of the process and going live? For the working-age payment are we speaking about a five-year or ten-year time horizon to move towards this type of model? How long will it take the Department and the technology to make the necessary changes? Would moving to a working-age payment obviate the need for a pay-related benefit?

Mr. Rónán Hession

I will answer the last question first. Whereas pay-related benefit is a social insurance payment to replace jobseeker's benefit, the working-age payment is the means-tested side. Effectively this would amalgamate jobseeker's allowance and working family payment. To go back to the IKEA analogy, if the pay-related benefit is the mock-up of a kitchen, the working age payment is the picture in the catalogue of the kitchen. In other words, it is a much earlier stage. It is really an outline sketch of the concept. It is behind pay-related benefit in the queue. It is a lot more complex to do. We felt it would be better to give people a sense of what it would look like so they could see it alongside the pay-related benefit and have a picture in their mind of what a coherent version of the future looks like.

When we did parent's benefit a couple of years ago it took us nine months to introduce it. We had to test all of the systems and run it, even with the legislation done. New schemes tend to take nine to 12 months from the decision point, depending on the complexity. Obviously at present we must go back to the Government with policy proposals to be further refined. There is a lead-in time for these. The Minister is very ambitious to get pay-related benefit progressed and we certainly want to try to come back to her on it.

Deputy Éamon Ó Cuív

One of the straw man proposals is a floor, or minimum payment, of €100 a week. There is a minimum payment at present but it was set years ago. We seem to be resetting it at an incredibly low rate. What is the logic behind this? I would have thought that a minimum payment should be €200 a week. I think €220 is the basic jobseeker's allowance or jobseeker's benefit payment. A minimum payment of €100 is very low. Another issue is that the people getting the minimum payment are probably those of low means and they would be better off on jobseeker's allowance. It is a very low rate to pay anybody. When was the current minimum rate set? What is it set at?

Mr. Rónán Hession

It is €98.70 and it was set in the budget. When the social welfare rates went from €208 to €220 there was a cascade through the lower rates. They are all paid together so they are moved together. In the straw man the published lowest rate was €93.30. In the budget that increased to €98.70.

Deputy Éamon Ó Cuív

It is very low.

Mr. Rónán Hession

Bear in mind this is for somebody on less than €150 a week. Based on a minimum wage of €11.30 it would be for someone working 12 hours a week who loses employment. The current system is pay related. The minimum rate applies to anyone who previously earned €150. Believe it or not, this is where the higher replacement rates come in. If people on a very low income, because they are part time and only working ten or 12 hours a week, go onto a jobseeker's payment at €100 and they previously earned €120 they are getting quite a high replacement rate at that level. The €100 is very low but these are not people who were previously working full-time hours. They are unlikely to be the primary earner in the household.

An Cathaoirleach

A related question to this is the income banding threshold for the various rates of payment. When was the last time they were increased? Has the Department looked at increasing these bandings, either line with the average industrial wage or in line with the minimum wage? What impact would this have on the bandings? I know the rates of payment are different but I am asking about the banding. Effectively through the straw man in a roundabout way are we modernising something that should have logically been updated on an annual basis, based on the average industrial wage or increases in minimum wage, rather than leaving it at an historic level?

Mr. Rónán Hession

If a Minister came in to me and said they wanted to introduce pay-related benefit, PRB tomorrow, I would say that the only quick and dirty version I could do them would be if we just changed the bands and left jobseeker's benefit as it is. Off the top of my head, I do not know – I do not know if colleagues here know – when the bands were last changed but the non-changing of the bands is probably to the advantage of the customer in that the highest rate is payable once someone is over €300. Once you move that band up, some people fall back in the pay rate. Not pegging them is probably a factor in how we have ended up with 85% of jobseeker's benefit recipients being on the top rate. The people below them probably had the band moved. There is a question though. Indexation is a core debate in the social welfare system. At the moment, it is being looked at in the context of pensions. We do not have a system of indexation in Ireland. It is done budget-by-budget where rates are reset. In a pay-related system, to some extent for those who are under the cap indexation is automatic because as their wages go up, they get 60% of a higher rate. Then the question of indexation is really indexation of the caps. Obviously jobseeker's benefit is banded at the moment; the pandemic unemployment payment, PUP, was banded; and there is reference in the strawman proposals as to why we have not put in a banded approach this time. One of the reasons is that one tends to get distortions within a band. For people at either extreme of it, one can get very different replacement rates and there are also threshold effects. For that reason, we thought it was better just to have a cap and then a straight percentage but we are obviously open to different views on that.

Deputy Éamon Ó Cuív

I agree with that. I think that when one puts bands in you do get distortions. There is no question about that. When there are finite limits, suddenly you are off.

An Cathaoirleach

People are caught on one side or the other. I have an issue related to what we are dealing with today. In his evidence here this morning, Mr. Hession made the point that this really came to the fore during the pandemic in terms of the impact of the pandemic unemployment payment. The current rates were insufficient to meet the costs and commitments that people have. There is an issue that I have taken up with Mr. Hession and the Minister previously when she was here, namely the whole area of long Covid. While what is before us is motivated by the Covid pandemic and the initial illness that people have had, the longer term implication is not yet being addressed by the Department of Health, never mind the Department of Social Protection.

Two weeks ago I published new poll data which shows that 10% of the adult population has now experienced long Covid symptoms after a period of initial infection. That has gone up from 6% in the last four months over that poll period. Of those people, 17% have reported that their ability to conduct their daily activities has been severely effected. It is disproportionately impacting more women than men and as a result of that, it is disproportionately impacting on those on lower income thresholds and households. Long Covid is having a significant impact on the workforce and in welfare, both in terms of the welfare claims and the impact on lost work. The Department of Social Protection has provided me with figures that show that 0.8% of those who contracted Covid-19 and claimed the enhanced illness benefit payment were medically certified as being unfit for work 12 weeks later. If that was extrapolated across all the people who contracted Covid-19 we would be talking nearly 22,000 adults across the country. That excludes people who relapsed after the initial recovery. The Department of Social Protection data is also showing that 35% of workers on those disability payments after Covid who did not return to work, were still out of work six months later.

I have two questions for Mr. Hession. First, when the Minister was last before the committee, she gave a commitment to look at listing long Covid as an occupational illness. I know she has already engaged with the Ministers for Enterprise, Trade and Employment and Health on that. Mr. Hession may not be able to answer me here today but I would be grateful if he could come back to the committee and update us on the progress that has been made to date on defining long Covid as an occupational illness for front-line workers and allowing them to avail of illness benefit.

The second question is related to the illness benefit and the strawman proposals. I hope, in the context of the Department’s consideration of the supplementary supports including illness benefit, that it would look at this particular issue which is also related to the jobseeker's issue. The emerging medical evidence now shows that the recovery for people who have been diagnosed with long Covid involves a phased return to work. The difficulty is, under both illness benefit or disability allowance, there is no mechanism to do that. You have to be in receipt of a payment for at least 12 months before you can then apply for a partial capacity payment to allow you to go back part time to work. This is not an issue at the moment because it is taking in excess of 12 months on average for a person with long Covid to get to see a consultant or to get to a specialist clinic but hopefully if the Department of Health were to get its act together and allow swift access into these clinics, people could start the rehabilitation far earlier. But they are in a predicament where it is now an all-or-nothing access to work. The emerging medical advice is that they should go back a couple of hours a day, one day a week and increase that maybe to two days a week and so forth. That is the medical evidence. The difficulty is that the Department of Social Protection, under the schemes as they are structured now, does not allow for that because of the rigidity in illness benefit.

In the context of what the Department is doing here, Mr. Hession has acknowledged that Covid has changed the whole dynamic in terms of unemployment payment rates. I am making the point to him that long Covid is having a similar impact in terms of illness benefit and that there is an opportunity to allow these people to go back and actively engage in the workforce again, much quicker than the timelines that are facilitated within the social welfare schemes. Can Mr. Hession give a commitment here that he will look at this specific illness and a more flexible approach to allowing people to return to work on an incremental basis where it benefits their recovery, ensures that they can return to productive work as quickly as possible and reduces the overall burden on our welfare system?

Mr. Rónán Hession

On an update on the engagement with the Departments of Enterprise, Trade and Employment and Health, we have been back and forth on various points. At official level, my team is still engaging with colleagues in the Department of Health trying to tease out the back and forth. We are not out of discussions on that yet. They are still going on.

An Cathaoirleach

The discussion is still ongoing with the Department of Health officials -----

Mr. Rónán Hession

That is right.

An Cathaoirleach

----- on that.

Mr. Rónán Hession

Yes. On the long Covid question, we are doing a separate strawman policy document on disability payments.

The Cathaoirleach raised the issue with me during a previous discussion. I have asked my team to look at it in the context of the reforms there. Deputy Ó Cuív will be aware of this as well because of his familiarity with partial capacity benefit. People cannot work when they are on illness benefit and invalidity pension, so partial capacity benefit is supposed to help people integrate that. There are time thresholds that kick in. The Cathaoirleach's core point is that a person may be ready to engage but not ready to leave the payment entirely and that there needs to be a transition.

An Cathaoirleach

Yes, and that is the emerging medical evidence in relation to this condition.

Mr. Rónán Hession

We are looking at that. In jurisdictions such as Northern Ireland, there are good examples of integration between the welfare and health systems in terms of occupational health. People’s position on the payment is linked with an overall wraparound involving physio and other occupational treatments. There are thing we can learn from that. The straw man for disability is looking at the structure of long-term payments, but also anomalies and flow through. We have a very low exit from disability payments. Some of that is around the issues the Cathaoirleach raised and some is around concerns about secondary benefits and lack of opportunity.

We will look at that scenario rather than the specific condition. Illness benefit does not work on the basis of different treatment for different conditions. If the condition is affecting a person’s ability to work, that is the gateway to the scheme. I understand the point the Cathaoirleach is making. Since our previous engagement, I have asked the team to tease that out and look at how we might address it.

An Cathaoirleach

Is the Department looking at that in the context of the straw man or is it being examined in the short term? The hope is that, eventually, the vast majority of people experiencing the symptoms of long Covid can return to the workforce. Introducing something in three or fours years’ time is of little use to the tens of thousands of people who could face this problem at the moment. The Department of Social Protection has been proactive in looking at this as an occupational illness. Bizarrely, the Department of Health is the one dragging its heels. Its staff are reaching an income cliff-edge in June, yet it does not seem to be making it the priority it should be. The difficulty is these people need that flexibility now. The medical advice and evidence is they need an incremental return to work. That flexibility is not there.

I accept that the definition of "illness benefit" requires that it is a long-term illness of a minimum of 12 months and that can be certified on your own. Doctors are certifying that in terms of the payment at the moment but there is an opportunity to assist these people to get back into the workforce far quicker. Rather than locking them out of employment and tying them into a welfare payment, there is an opportunity to use this as a novel solution to a novel illness, as we had to do with the pandemic unemployment payment and the enhanced illness benefit. The Department needs to urgently look at this and not wait for a straw man at some future date.

Mr. Rónán Hession

We will certainly take that back.

An Cathaoirleach

I thank the officials before us, Mr. Hession and his team, for engaging with us on this. We have had a useful engagement and I hope the witnesses take the points raised in the context of their evaluation of the straw man, which we all believe is a good mechanism to encourage engagement. It is a tool the Department now uses more frequently to stimulate engagement. We welcome that. I thank the witnesses for their constructive and positive engagement with the committee this morning and in the past on this and other issues. Go raibh míle maith agaibh go léir.

The joint committee went into private session at 10.55 a.m. and adjourned at 11.08 a.m. until 9.30 a.m.on Wednesday, 26 April 2023.