The Labour government of January 1924 was opposed to the means test in principle, particularly as it could deny benefit to claimants who had paid contributions. The new Minister of Labour, Thomas Shaw was determined to remove the test, but the Chancellor, Philip Snowden, opposed this as being too expensive. Shaw won the argument in Cabinet, and the 'genuinely seeking work test' became the sole test for excluding claimants.
The second Unemployment Insurance Act of 1924 extended the application of the 'genuinely seeking work clause' to cover all benefit claims, including those who had previously qualified under the 'one in six' rule. Shaw added further criteria, limiting the validity of claims. Claimants were required to have made 30 contributions in the previous two years, although the Minister was empowered to waive this requirement. While 'standard' or covenanted benefit was limited to 26 weeks, 'extended' or uncovenanted benefit could be claimed for the whole period of unemployment.
From 1925, Stanley Baldwin's government used Shaw's criteria to refuse an increasing percentage of claims and reintroduced the means test. The new Minister of Labour, Arthur Steel-Maitland, concerned about the 'abuse' of benefit, recommended a Committee of Inquiry.
The Blanesburgh Committee reported in 1927. It found little evidence of 'abuse' but recommended some cuts in benefit and the merging of the 'standard' and 'extended' benefit so that claimants who had made 30 contributions in the previous two years would receive up to 87 weeks benefit. These recommendations were included in the Unemployment Insurance Act of 1927. More controversial was a proposal to raise Treasury contributions to equal those paid by the employer and worker. At the Treasury, this was fiercely resisted by Winston Churchill and dropped from the 1927 Act.
When Labour was elected in 1929 under Ramsay MacDonald, the fund was around £35 million in debt. During the election, Labour had promised to provide more generous payment to the unemployed. The Minister of Labour, Margaret Bondfield, proposed that, given the difficult economic circumstances, the 30 contributions rule should be retained. Cabinet rejected this but financial difficulties limited Labour's reform of unemployment insurance.
With the onset of the Great Depression in late 1929, economic conditions worsened and the level of unemployment rapidly increased. This demanded a response from the government, and the 1930 Unemployment Insurance Act substantially reformed the benefits system. It made it easier for those seeking 'transitional' benefit, and abolished the requirement that those receiving benefit should be genuinely seeking work. Responsibility for long-term unemployment payments passed to the Exchequer and a means test was applied to this type of benefit.
As the difficult economic circumstances continued, long-term unemployment became an increasingly serious problem. The Unemployment Act of 1934 established two categories of benefit. Unemployment benefit was paid from the Unemployment Insurance Fund to those who qualified in terms of previous contributions. Unemployment assistance was paid to those who had exhausted their rights under the contributory scheme or had never qualified. Payment of this benefit was subject to a means test and was the responsibility of the Unemployment Assistance Board, which assumed the function of the old Poor Law authorities.
Unemployment figures improved from the mid 1930s. The Unemployment Insurance Fund, which had been continually in deficit, moved to a position of surplus. The unemployment insurance provision remained intact until the Second World War.