Great Britain Establishes Unemployment Benefits Summary

  • Last updated on November 10, 2022

From 1920 to 1925, Great Britain enacted several laws that established a national system of unemployment insurance, laying the groundwork for a program of unemployment relief.

Summary of Event

In the post-World War I period, Great Britain’s economic system faltered. Depression engulfed much of the nation in 1921, and unemployment reached unparalleled proportions. In response, the government expanded prewar social insurance legislation to provide relief for the unemployed. From 1920 to 1925, fifteen acts of Parliament dealt with assistance to the unemployed. The changeover from a Labour Party government to a Conservative Party government did not end the program of social reform. In 1925, when the British Labour Party, led by Ramsay MacDonald, lost power, the new Conservative government attempted to make the unemployment insurance programs affordable and, if feasible, self-supporting. Unemployment insurance;Great Britain Insurance;unemployment [kw]Great Britain Establishes Unemployment Benefits (1920-1925) [kw]Britain Establishes Unemployment Benefits, Great (1920-1925) [kw]Unemployment Benefits, Great Britain Establishes (1920-1925) [kw]Benefits, Great Britain Establishes Unemployment (1920-1925) Unemployment insurance;Great Britain Insurance;unemployment [g]England;1920-1925: Great Britain Establishes Unemployment Benefits[05000] [c]Business and labor;1920-1925: Great Britain Establishes Unemployment Benefits[05000] [c]Economics;1920-1925: Great Britain Establishes Unemployment Benefits[05000] [c]Social issues and reform;1920-1925: Great Britain Establishes Unemployment Benefits[05000] [c]Laws, acts, and legal history;1920-1925: Great Britain Establishes Unemployment Benefits[05000] Baldwin, Stanley Chamberlain, Neville Churchill, Winston Lloyd George, David MacDonald, Ramsay

In the 1880’s, Germany had legislated a much-admired social welfare system. The so-called Bismarckian program, however, had not dealt with unemployment. It was left for Great Britain to take the lead role in that category. The Unemployment Insurance Act of 1925 Unemployment Insurance Act (1925) reflected Great Britain’s prewar attempts to obtain relief for unemployed workers. Great Britain’s modern welfare system began in the early twentieth century. In 1909, the Liberal Party had embarked on a far-reaching program of social reforms. A network of labor exchanges was set up to provide opportunities for employment. Two years later, the National Insurance Act Part II National Insurance Act Part II (1911) initiated unemployment insurance for workers in certain trades. The person most responsible for Part II was Winston Churchill, president of the Board of Trade. Churchill described unemployment as the Achilles’ heel of British labor, and he proposed a national minimum income to combat the problems presented by unemployment. The capstone to the welfare state the Liberals were building was the National Insurance Act Part II. An experimental program, it applied only to select trades in which employment fluctuated the most, including construction, auto manufacture, and shipbuilding.

The plan was contributory—employers, workers, and the state contributed modest amounts for every week of insured employment. Approximately two and one-half million workers, including ten thousand women, were covered. Churchill’s plan, however, was delayed three years because of the outbreak of World War I. In 1916, coverage was extended to munitions workers, anticipating the return of peace and those workers’ consequent unemployment. Unemployment within the covered trades was virtually nonexistent during the war, and the Unemployment Fund amassed a surplus of £15 million.

After the armistice in 1918 until March, 1921, the state provided for unemployed civilians and former service members through “Out of Work Donations,” special grants that were not part of the unemployment insurance. Most of the unemployed were entitled to the more generous “donations,” and they preferred them to the insurance. Ironically, while Great Britain spent £62 million through the “donation” system, the Unemployment Fund saved money. The public’s attitude toward the state’s responsibilities in dealing with unemployment in the postwar period was shaped by prewar experiments. The Liberals had established labor exchanges, introduced unemployment insurance, and started public works. The earlier programs were based on contributory insurance principles.

Because the wartime prosperity resulted in an Unemployment Fund surplus, Great Britain increased unemployment benefits without increasing the contributions. The program was further improved when the government passed the Unemployment Act of 1920, Unemployment Act (1920) linking unemployment insurance with health insurance and extending the coverage nationwide. The Unemployment Act of 1920 became the “parent act” of the national system of unemployment insurance. Nearly all manual workers and all nonmanual workers earning less than £250 per year were included, extending the program to almost twelve million workers. The act provided for “covenanted” benefits, earned through contributions, for a maximum of fifteen weeks. The 1920 unemployment act met little opposition because its basic principles had been set in 1911.

This extended coverage came just as the postwar depression hit Great Britain. When the act passed, fewer than one-half million workers were unemployed; in two months, the figure doubled. By the end of June, 1921, there were two million unemployed, apart from the part-time workers also making claims. Parliament responded with a new system of benefits in advance of contributions, called “uncovenanted” benefits, and converted the insurance year to two “special periods” of thirty-five weeks each. The maximum of fifteen weeks of benefits was extended to sixteen weeks in each of the special periods. As the depression worsened, benefits were extended to twenty-two weeks during the special periods, but benefit levels were reduced to those of 1920.

Continued economic crises forced Parliament to enact the Unemployed Workers’ Dependents Act. Intended to last only six months, the dependents’ grant program became a permanent attachment to the 1920 parent act. The dual system of benefits enacted in 1922 included a “gap principle,” which provided for fifteen weeks of uncovenanted benefits broken by gaps of five weeks to help extend the relief over a thirty-week period. Covenanted benefits had no gaps. The 1923 Conservative government was forced to extend the uncovenanted benefits to eighteen weeks, subject to a two-week gap; covenanted benefits ran twenty-six weeks. Additional legislation provided for “benefit years” during which twenty-six weeks of uncovenanted benefits could be drawn.

The election of 1924 brought the Labour Party, led by Ramsay MacDonald, into power. This first socialist government attempted to rebuild the entire benefits structure. It removed the gap of three weeks, granted covenanted (now “standard”) benefits to all classes, extended benefits from twenty-six to forty-one weeks, and made uncovenanted (now “extended”) benefits a statutory right, just as the standard benefits were. MacDonald, however, claimed that unemployment assistance was “never meant to be a living wage.”

MacDonald’s sudden dissolution of Parliament in October, 1924, returned Stanley Baldwin and the Conservative Party to power. The transfer of power, however, did not stop the process of change. The extended benefit ceased to be a statutory right, but to prevent thousands from starving and becoming paupers, the government was forced to waive rules that protected the Insurance Fund. The administrative waiver kept some 200,000 to 300,000 workers on the extended benefit rolls. The urgent need for relief forced the Conservative government to pass the Widows’ and Orphans’ and Old Age Contributory Act in 1925. Widows’ and Orphans’ and Old Age Contributory Act (1925)[Widows and Orphans and Old Age Contributory Act] Neville Chamberlain, the minister of health, requested that Baldwin consider the four basic fears of the breadwinner: unemployment, sickness, old age, and death. Baldwin did so, and, consequently, the 1925 legislation became the most comprehensive unemployment relief program enacted up to that time.

Based on the 1920 parent act, the 1925 legislation continued unemployment benefits and the dependents’ grant benefit as well as added relief for widows, orphans, and aged citizens. For seven years, the Unemployment Insurance Act, not public works, provided relief for the jobless. Subsequent legislation enacted in 1927 and future unemployment relief measures of the 1930’s were based on the parent act of 1920 and the other acts passed from 1920 through 1925.

Significance

Great Britain’s experiment had a number of impacts internationally. The scientific theory of unemployment insurance on which it was based was the first of its kind in the world community. The Bismarckian social reforms of Germany had intentionally avoided unemployment remedies. Parliament saw that Great Britain could no longer ignore the plight of jobless workers, and the government’s acceptance of the nation’s responsibility for its workers served as a model for other nations, many of which followed suit with their own programs. Great Britain became the bellwether in legislating relief benefits for the jobless.

By 1920, the principle of unemployment insurance had become nationally recognized in Great Britain as not only beneficial but also necessary. In that year, nearly all British workers were brought under the protection of the program, making the total number eligible for relief about eleven million. Changes made from 1920 through 1925 were mainly technical rather than substantive. In 1921, for example, the power to “contract out,” whereby an industry could exempt itself from contributing to the insurance fund, was suspended; it was abolished in 1927. Aid to dependents of unemployed workers was added to relieve the suffering of families. Waiting periods for assistance were reduced, periods of eligibility were extended, and types of coverage were significantly enlarged to enhance the relief measures.

The contributory insurance principle had been designed to cope with seasonal or cyclical unemployment, but the chronic unemployment of the 1920’s prevented the scheme from functioning as planned. The collapse of the postwar boom caused Great Britain’s unemployment rate to rise to 11 percent nationwide, compared with the 6 percent rate in the thirty years before World War I. Regional and industrywide jobless rates varied. The coal mining industry, after the strike of 1921, suffered from 23 percent unemployment, and 36 percent of the workers in shipbuilding and steel, industries that relied heavily on coal, were jobless. Great Britain responded by increasing unemployment benefits and making them available to more unemployed workers.

Great Britain abandoned the earlier “tiding over” concept of unemployment assistance to establish a minimum income for each worker. Under the act passed in 1920, weekly benefits were fixed at fifteen shillings for a man and twelve shillings for a woman, with half rates for young people. The Unemployed Workers’ Dependents Act gave a married man eligible for benefits five shillings for his wife and one shilling for each dependent child under age fourteen, and an unmarried man was given a grant of five shillings to pay for a housekeeper.

At least one analyst has suggested that an unemployed man and his family possibly were better off during this period than an unskilled laborer with a job. The Unemployment Act and the dependents’ grant program were accompanied by programs for housing, education, and health needs. The total effect was considerable improvement in the standard of living for the jobless. The national insurance scheme provided medical care to nineteen million workers and dependents. Because of the relief measures, many recipients were better fed and clothed than they had previously been, and they also saw improvements in their standards of health as the incidence of infectious diseases dropped. Although these relief measures were often ad hoc and full of inadequacies, for many British citizens they reduced the distress that accompanies illness, old age, and loss of a job. Unemployment insurance;Great Britain Insurance;unemployment

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Aldcroft, Derek H. The Inter-war Economy: Britain, 1919-1939. New York: Columbia University Press, 1971. A useful critical survey of the growth of Great Britain’s economy, fluctuations in economic activity, and regional patterns of development. Focuses on the Great Depression at the expense of discussion of the 1920’s, however. Includes index and extensive bibliography.
  • citation-type="booksimple"

    xlink:type="simple">Beveridge, William Henry. Unemployment: A Problem of Industry. 3d ed. London: Longmans, Green, 1912. Still useful although dated, as it presents a contemporary’s view of Great Britain’s economic problems and the legislation enacted to remedy those problems. Includes bibliography.
  • citation-type="booksimple"

    xlink:type="simple">Cohen, Percy. The British System of Social Insurance: History and Description. New York: Columbia University Press, 1932. Looks at each specific event leading to the passage of unemployment insurance in Great Britain. Dated (it was written at the start of the Great Depression) but useful for the light it sheds on the evolution of social reform legislation. Includes bibliography and index.
  • citation-type="booksimple"

    xlink:type="simple">Garraty, John A. Unemployment in History: Economic Thought and Public Policy. New York: Harper & Row, 1978. Examines the development of public policy to cope with unemployment in several industrial nations, including discussion of the opposition faced by proposed social legislation. Includes bibliography and index.
  • citation-type="booksimple"

    xlink:type="simple">Gilbert, Bentley B. British Social Policy, 1914-1939. Ithaca, N.Y.: Cornell University Press, 1970. Comprehensive coverage of the report of Britain’s Unemployment Insurance Committee. A serious in-depth study of British social policy between the world wars, analytic and occasionally critical. Includes bibliography and index.
  • citation-type="booksimple"

    xlink:type="simple">Glynn, Sean, and Alan Booth. Modern Britain: An Economic and Social History. New York: Routledge, 1995. Discusses economic and social developments in Great Britain, focusing on the period between World Wars I and II as well as the period immediately following World War II. Topics include growth, industry, welfare, and unemployment. Features figures, tables, bibliography, and index.
  • citation-type="booksimple"

    xlink:type="simple">Kohler, Peter A., and Hans F. Zacher, eds. The Evolution of Social Insurance, 1881-1981: Studies of Germany, France, Great Britain, Austria, and Switzerland. London: Frances Pinter, 1982. Provides an excellent comparison of the social insurance programs of European nations. Chapter on Great Britain surveys the evolution of unemployment insurance from England’s 1834 Poor Law up to the late 1970’s. Volume reflects a critical German point of view but succinctly covers the major legislation of the twentieth century. Unusual indexing allows the reader to compare easily all social insurance topics of each nation. Includes bibliography.
  • citation-type="booksimple"

    xlink:type="simple">Pugh, Martin. State and Society: A Social and Political History of Britain 1870-1997. 2d ed. London: Arnold, 2000. Analyzes social policy and political developments in Great Britain from the last part of the nineteenth century onward. Includes discussion of Britain’s implementation of a system of unemployment insurance. Features illustrations, figures, tables, and index.
  • citation-type="booksimple"

    xlink:type="simple">Winch, Donald. Economics and Policy: A Historical Study. New York: Walker, 1969. Presents useful discussion of the ever-widening scope of the state’s responsibility for economic affairs. Compares Great Britain’s legislative process with that of the United States, noting the effects of each system on policy formation and its implementation. Includes index.

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