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REFORM

Welfare Reform for the 21st Century

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ABI WELFARE <strong>REFORM</strong> FOR THE 21ST CENTURYThe financial impact of low savingsHouseholds that do not have large savings, or asource of income to replace the lost income,find themselves in serious financial difficulties,unable to meet financial commitments such as,mortgage or rent and other credit repayments.Increasing use of credit to make ends meet, butwhich they can not afford to repay, can lead tothem spiralling into unmanageable debt.The Citizens Advice Bureau report 6 thatIllness and disability was the third major reason survey (24% of clients gave this as a reason fortheir debt). In many cases, the debt had arisenwhen the client had to give up work because oftheir ill health. In other cases, the client had togive up work to care for an ill or disabledrelative. Not only do the clients’ income drop,but also their expenditure may rise becausethey need to keep the heating on for longer orrequire a special, more expensive diet”.It also matters to the economy. Households inthis situation are unable to pay their bills in full.They have to substantially reduce their spendingand therefore, the money they contribute to theeconomy through purchasing goods andservices, providing savings that can be used forinvestment, and through income tax, VAT andNational Insurance Contributions.In May 2014 the CBI reported 7 that in 2012the direct costs of absence to the economywere estimated at over £14 billion. Totalpublic sector spending on incapacity,disability and injury benefits in 2012-13 wasover £36 billion, with Employment SupportAllowance being claimed by 2.47 millionpeople in August 2013.The Malcolm / Zurich report showed that IPclaim payments mean that the State paysout less in welfare payments and receiveshigher taxes than when IP is not in place.Overall UK taxpayers already gain around£165 million annually from the presence ofGIP policies (£85 million from lower welfarepayments and £80 million from higherincome tax and National InsuranceContributions). Individuals with higherincomes also gain by £190 million than in theabsence of IP. If UK coverage of IP reachedthe same level as that seen in the US, thegains to UK taxpayers would be around£725 million.THE CITIZENS ADVICEBUREAU REPORTTHAT:“ILLNESS ANDDISABILITY WAS THETHIRD MAJORREASON FOR DEBTPROBLEMS GIVEN BYCLIENTS IN THE 2008SURVEY”.Gains for taxpayersLower welfarepayments£85millionHigher income taxand NationalInsuranceContributions£80millionTotal £185millionGains fromrehabilitationactivities£20millionIn addition, financial difficulties create intensestress, and over recent years have contributedto a substantial increase in the numbers ofpeople experiencing mental illness, with theobvious knock on effects on workplaceproductivity, family and social problems, andpressures on the healthcare system. The Frost / health disorders are one of the biggest causesof long-term absence and, according to anumber of business surveys, are on theincrease as a reason for absence. It isestimated that each year 1 in 6 workers inEngland and Wales is affected by anxiety,depression and unmanageable stress”. major driver for labour market exclusion in theUK. Each year mental ill-health costs the UKeconomy £70bn a year – the equivalent to 4.5%of GDP – through lost productivity, socialbenefits and healthcare costs. Mental disordershave become the most common reason for a new claims.”6 7CBI (May 2014) ‘Getting Better – Workplace Health as a Business Issue’8 abi.org.uk14

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