DWP SCRAPS ESA & JSA: New ‘Unemployment Insurance’ Pays £2,500 More—But Cuts Support After One Year

The UK welfare landscape is facing its most significant transformation in a decade as the Department for Work and Pensions (DWP) moves forward with plans to dismantle the current 'New Style' Employment and Support Allowance (ESA) and Jobseeker’s Allowance (JSA). In a move designed to "restore faith" in the social security system, ministers are consulting on replacing these legacy pillars with a singular, contributory benefit tentatively named Unemployment Insurance (UI).

This radical restructuring targets the 1.4 million people currently claiming ESA and the 90,000 on JSA, aiming to shift the focus from indefinite support to a time-limited, contribution-based model.

The ‘Unemployment Insurance’ Proposal

Under the new plans, which follow the "Get Britain Working" framework, the confusing mix of JSA and ESA will be abolished. In their place, Unemployment Insurance will emerge as a non-means-tested entitlement strictly for those who have "paid in" via National Insurance.

The DWP’s Green Paper outlines a clear shift in philosophy: "As part of restoring faith in the social security system, people need to know that if they have paid in, they will get support when they need it."

Key Features of the Proposed System:

1. Higher Weekly Rates: The new UI is expected to be paid at a significantly higher rate than current jobseeker benefits to reward contribution.
2. Time-Limited Support: Unlike the indefinite support available under some ESA categories, UI would be strictly time-limited—likely to 12 months—to encourage a quicker return to the workforce.
3. No Means Testing: Savings and partner income will not reduce entitlement, preserving the contributory principle.
4. Active Work Search: Claimants will be expected to actively seek work, though "easements" will apply to those with health conditions.

Financial Breakdown: JSA vs. New Unemployment Insurance

The most striking aspect of the proposal is the immediate financial boost for short-term unemployed workers. Our analysis of the proposed rates reveals a significant gap between the old system and the new Unemployment Insurance.

Currently, a typical Jobseeker’s Allowance (JSA) claimant (aged 25+) receives approximately £92.05 per week.

Under the new proposal, Unemployment Insurance would be paid at the equivalent of the current ESA assessment rate, estimated at £140.55 per week.

The Difference in Your Pocket:

• Weekly Increase: £48.50
• Monthly Increase: ~£210.00
• Annual Difference: Over £2,500 extra support in the first year.

This change brings the UK closer to the European model, where unemployment benefits are designed to cushion the fall from salaried work rather than offering a bare minimum subsistence. However, this higher rate comes with a strict expiry date.

Winners and Losers: The 'Something-for-Something' Deal

The government describes this as revitalizing the "something-for-something" principle. For the short-term unemployed, this is good news. A worker losing their job today often faces a cliff-edge drop in income; the new UI promises a softer landing with higher weekly payments comparable to European standards.

However, concerns are mounting for the long-term sick. Currently, many ESA claimants rely on the benefit for extended periods due to chronic illness. A shift to a time-limited "Unemployment Insurance" could force these individuals onto the means-tested Universal Credit system once their UI runs out, potentially exposing them to stricter asset limits.

Expert Analysis: A Modern System or a Cut in Disguise?

Economic experts are weighing in on the viability of the scheme. Martin Mikloš, a Research Economist at the Institute for Fiscal Studies (IFS), suggests the reform is long overdue but warns it may still fall short of international benchmarks.

"Contributory benefits in the UK are a small but significant part of the overall social safety net," Mikloš explained. "Their design has been neglected for many years. The government’s proposed unemployment insurance would substantially increase the benefit rate for jobseekers, but that rate would still be low by European standards."

Mikloš added that while extending support to 12 months would help, it essentially modernizes a neglected part of the welfare state rather than revolutionizing the income replacement rates seen in countries like Germany or France.

Anvar Sarygulov, Research Grants and Programmes Manager at the Nuffield Foundation, echoed the need for reform but flagged a critical risk for vulnerable claimants. "There is a strong case for strengthening the level and duration of support," Sarygulov noted. "However, the government needs to avoid pulling the rug out from under existing long-term claimants with health conditions by thinking carefully about the delivery and design of any transitional support."

Broader 2026 Welfare Context: Universal Credit and PIP

This "Unemployment Insurance" plan sits alongside wider 2026 reforms. As previously reported, April 2026 will see the Universal Credit standard allowance rise above inflation, yet new claimants for the health element (LCWRA) face tighter criteria and reduced payments—dropping from over £400 to around £217 per month for new claims.

Simultaneously, the DWP is streamlining disability assessments. The move to a single assessment for both PIP and the health element of Universal Credit intends to stop the endless cycle of reassessments, though campaigners worry it raises the stakes for that single test.

What Happens Next?

While the proposal is currently in the consultation and planning phase, the direction of travel is clear. The government is committed to a system that rewards contribution but demands active participation in the labor market.

For now, current ESA and JSA claimants do not need to take action, but with the proposed implementation dates drawing closer, millions will be watching to see if "Unemployment Insurance" delivers genuine security or just a shorter safety net.