National Insurance Act 1911

The National Insurance Act 1911 (1 & 2 Geo. 5. c. 55) created National Insurance, originally a system of health insurance for industrial workers in Great Britain based on contributions from employers, the government, and the workers themselves. It was one of the foundations of the modern welfare state. It also provided unemployment insurance for designated cyclical industries. It formed part of the wider social welfare reforms of the Liberal Governments of 1906–1915, led by Henry Campbell-Bannerman and H. H. Asquith. David Lloyd George, the Liberal Chancellor of the Exchequer, was the prime moving force behind its design, negotiations with doctors and other interest groups, and final passage, assisted by Home Secretary Winston Churchill.

Background
Lloyd George followed the example of Germany, which under Chancellor Otto von Bismarck had provided compulsory national insurance against sickness from 1884. After visiting Germany in 1908, Lloyd George said in his 1909 Budget speech that Britain should aim to be "putting ourselves in this field on a level with Germany; we should not emulate them only in armaments." His measure gave the British working classes the first contributory system of insurance against illness and unemployment. The Act only applied to wage earners—about 70% of the work force—their families and the unwaged were not covered.

After first praising the proposal, the Conservatives split, and most voted against it. But when returned to office they did not change it.

Some trade unions who operated their own insurance schemes, and friendly societies who had their own schemes, at first opposed the proposal, but Lloyd George convinced most of them to support it. The friendly societies and trade unions were given a major role in administering health insurance. Covered workers outside those agencies dealt with the local post office. The government picked up responsibility for the basic benefits that the unions and societies had promised, thus greatly helping their financial reserves.

The Act was psychologically important, as it removed the need for unemployed workers to rely on the stigmatised social welfare provisions of the Poor Law. This hastened the end of the Poor Law as a social welfare provider: the Poor Law Unions were abolished in 1929, and the administration of poor relief was transferred to the counties and county boroughs.

Key figures in the implementation of the Act included Robert Laurie Morant and especially economist William Braithwaite, who drafted the details after inspecting the German system.

The medical profession and the British Medical Association were angry with the law, despite support from some prominent leaders such as Victor Horsley. Some critics on the right such as Hilaire Belloc considered the Act to be a manifestation of The Servile State, which Belloc blasted in his book of the same name. Collection of contributions began in July 1912, and payments on 15 January 1913.

The bill was introduced by Lloyd George to Parliament on 4 May 1911. On the Third Reading the government was victorious by a huge majority. Most Unionists abstained, although 11 voted against the bill and 9 in favour of it, while the Labour Party was also split, with 32 Labour MPs supporting the government and 5 from the party's socialistic wing voting against. In addition, 58 'Redmonite' Irish voted with the government with 7 O'Brienites against it. It became law on 16 December 1911, and went into effect on 1 July 1912.

Part I, Health
The National Insurance Act Part I provided for a National Insurance scheme with provision of medical benefits. All workers who earned under £160 a year had to pay 4 pence a week to the scheme; the employer paid 3 pence, and general taxation paid 2 pence (Lloyd George called it the "ninepence for fourpence"). Under the Act, workers could take sick leave and be paid 10 shillings a week for the first 13 weeks, and 5 shillings a week for the next 13 weeks. Workers also gained access to free treatment for tuberculosis, and the sick were eligible for treatment by a panel doctor. Due to pressure from the Co-operative Women's Guild, the National Insurance Act provided maternity benefits.

In parts of Scotland whose economy was still largely based on subsistence farming, the collection of cash contributions was impractical. The Highlands and Islands Medical Service was established in the crofting counties on a non-contributory basis in 1913.

Though the fund was held centrally, and the obligation to pay into it was a nationally imposed one, access to the scheme was via "Approved Societies", who collected the contributions, paid out for treatment, and provided day-to-day administration. A worker could choose which Approved Society to belong to; this stimulated competition between the societies. The 1911 Act only allowed Approved Societies to collect the contributions of their members; they could not keep the money, but had to forward it to the National Insurance Fund. The societies' own expenditure, such as the cost of treatment for their members, would be reimbursed by the Fund, on a six-monthly basis. The government did not reimburse any "improper" payments, such as "treatments" that did not comply with government regulations, or corrupt payments.

Any organisation could become an Approved Society, as long as it was registered under the Act, and complied with the Act's obligations, including to operate on a not-for-profit basis. As well as societies created by the trade unions and friendly societies, commercial insurers also established Approved Societies, such as the National Amalgamated Approved Society (created by Pearl Assurance and others); the largest Approved Societies were the four operated by Prudential, which collectively looked after 4.3 million members.

Many Approved Societies were nominally profitable, contributing more to the National Insurance Fund than they took out. In 1925, and then 1931, further Acts were passed which reduced the government contribution to the fund: the government pressured the backers of Approved Societies (the insurance companies, trade unions, and so on) to take on the financial burden themselves. Together with increasing government control on which treatments they were allowed to fund, this led many Societies to complain that they had become little more than branches of government, and membership attendance at society meetings dwindled away, becoming virtually non-existent by 1940.

The National Insurance Act 1946 introduced a single national organisation in the healthcare field (the National Health Service) which, among other things, fulfilled the role of the Approved Societies; Approved Societies thus became redundant, and ceased to exist in 1948.

Part II, Unemployment
The National Insurance Act Part II provided for time-limited unemployment benefit for certain highly cyclical industries, especially the building trades, mechanical engineering, foundries, vehicle manufacturing, and sawmills. The scheme was based on actuarial principles, and it was planned that it would be funded by fixed payments from workers, employers, and taxpayers. It made no provision for dependants. Part II worked in a similar way to Part I. The worker gave 2$1/2$d (i.e pre-decimal pence) per week while employed, the employer 2$1/2$d, and the taxpayer 3d. After one week of unemployment, the worker would start to be eligible to receive 7 shillings (i.e. 84d) per week for up to 15 weeks in a year. The money would be collected from labour exchanges. By 1913, 2.3 million were insured under the scheme for unemployment benefit and almost 15 million insured for sickness benefit.

A key assumption of the Act was an unemployment rate of 4.6%. At the time the Act was passed, unemployment was at 3% and the fund was expected to quickly build a surplus. Under the Act, employees' contributions to the scheme were to be compulsory and taken by the employer before the workers' salary was paid.

Legislative history
Amended by National Insurance Act 1913 c. 37, draft regulations were published in November 1913.