Labour's challenge is to show that it has the best plan to control welfare spending

The party needs a "social investment" strategy to reduce the subsidisation of private landlords, low-paying employers and long-term worklessness.

When George Osborne used his new year political message to raise the prospect of a further £12bn of cuts to working age benefits, it confirmed that the Conservatives will put welfare at the centre of their re-election strategy. In a speech at the IPPR today, Rachel Reeves will set out her first response to this challenge as part of a series of interventions from the Labour frontbench to connect their arguments about the "cost of living crisis" to the need for longer term social and economic reform.

Having signed up to the principle of a cap on structural welfare spending, the priority for Labour is to contest the debate about which party has the best strategy for sustainably controlling rises in the benefits bill and squeezing the greatest value from taxpayers' money. This requires a "social investment" strategy to reduce the subsidisation of private landlords, low-paying employers and long-term worklessness. The goal should be, over time, to shift spending from cash transfers and into housebuilding, childcare, apprenticeships and back to work support. As Ed Miliband argued last week, Britain has to earn its way to higher living standards.

A political direction of this kind can also be connected to Labour’s stated interest in reviving the contributory principle within the welfare system. In most of continental Europe, a distinction remains between social insurance (protection from cyclical risks for those who have contributed) and social assistance (means-tested support to those on the lowest incomes). However, over a number of decades, these two functions have been almost entirely conflated in this country. Restoring the distinction would mean aiming to reduce reliance on the state for permanent income replacement wherever possible, while strengthening temporary protection at key moments when earned income drops, like losing a job and having a child.

Marrying social investment and the contributory principle in this way would require a significant re-engineering of social policy, re-orientating of public spending, plus institutional innovation to revive the currently moribund National Insurance system. As part of IPPR’s Condition of Britain programme, we are exploring how such a strategy could be advanced, within the constraints of plausible fiscal scenarios for the next Parliament.

One option is to expand the role of income-contingent loans in providing much more substantial support to those who have contributed into the system if and when they face a drop income due to job loss, on a temporary and repayable basis. Our proposal for National Salary Insurance is one variant on this idea. Another is to provide a higher rate of short-term benefit for those who lose their job after having paid into the system, funded by increasing the number of years of contribution required before this entitlement kicks in. This could be modelled on Statutory Maternity Pay, which pays a much higher rate for the first six weeks – and is only available to those women who worked before having a child.

In the coming months, we will be analysing ideas such as these with a view to setting out practical, costed proposals for shifting to social investment and restoring the contributory principle. This will also include looking at how drawing a clearer distinction between the "social insurance" and "social assistance" tracks could affect the back to work support people receive and their interactions with the welfare system. We also want to explore how the institutional architecture of the National Insurance Fund – which evokes a tradition of mutual protection in this country – could be revived to help this task.

It is clear that the debate about benefits will be at the forefront of the political battleground over the coming year. It is vital that those of us committed to a resilient and effective welfare system advance feasible reforms that can chime with popular values, as well as defending against the worst attacks on vulnerable people.

Graeme Cooke is Research Director at IPPR

Members of the public in north London walk past a poster informing of changes to the benefits and tax system that came into effect in April 2013. Photograph: Getty Images.

Graeme Cooke is Associate Director at IPPR

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Theresa May defies the right by maintaining 0.7% aid pledge

The Prime Minister offers rare continuity with David Cameron but vows to re-examine how the money is spent. 

From the moment Theresa May became Prime Minister, there was speculation that she would abandon the UK's 0.7 per cent aid pledge. She appointed Priti Patel, a previous opponent of the target, as International Development Secretary and repeatedly refused to extend the commitment beyond this parliament. When an early general election was called, the assumption was that 0.7 per cent would not make the manifesto.

But at a campaign event in her Maidenhead constituency, May announced that it would. "Let’s be clear – the 0.7 per cent commitment remains, and will remain," she said in response to a question from the Daily Telegraph's Kate McCann. But she added: "What we need to do, though, is to look at how that money will be spent, and make sure that we are able to spend that money in the most effective way." May has left open the possibility that the UK could abandon the OECD definition of aid and potentially reclassify defence spending for this purpose.

Yet by maintaining the 0.7 per cent pledge, May has faced down her party's right and title such as the Sun and the Daily Mail. On grammar schools, climate change and Brexit, Tory MPs have cheered the Prime Minister's stances but she has now upheld a key component of David Cameron's legacy. George Osborne was one of the first to praise May's decision, tweeting: "Recommitment to 0.7% aid target very welcome. Morally right, strengthens UK influence & was key to creating modern compassionate Conservatives".

A Conservative aide told me that the announcement reflected May's personal commitment to international development, pointing to her recent speech to International Development staff. 

But another Cameron-era target - the state pension "triple lock" - appears less secure. Asked whether the government would continue to raise pensions every year, May pointed to the Tories' record, rather than making any future commitment. The triple lock, which ensures pensions rise in line with average earnings, CPI inflation or by 2.5 per cent (whichever is highest), has long been regarded by some Conservatives as unaffordable. 

Meanwhile, Philip Hammond has hinted that the Tories' "tax lock", which bars increases in income tax, VAT and National Insurance, could be similarly dropped. He said: "I’m a Conservative. I have no ideological desire to to raise taxes. But we need to manage the economy sensibly and sustainably. We need to get the fiscal accounts back into shape.

"It was self evidently clear that the commitments that were made in the 2015 manifesto did and do today constrain the ability to manage the economy flexibly."

May's short speech to workers at a GlaxoSmithKline factory was most notable for her emphasis that "the result is not certain" (the same message delivered by Jeremy Corbyn yesterday). As I reported on Wednesday, the Tories fear that the belief that Labour cannot win could reduce their lead as voters conclude there is no need to turn out. 

George Eaton is political editor of the New Statesman.

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