Ed Miliband and Ed Balls at the Labour conference in Brighton last year. Photograph: Getty Images.
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Labour's jobs guarantee plan creates smart dividing lines with the Tories

The party pledges to fund the policy for the whole of the next parliament by introducing a bank bonus tax and restricting pension tax relief for those earning over £150,000.

Labour recently found itself in a difficult position when it was forced to concede that it was only committed to funding its jobs guarantee plan for the first year of the next parliament. The admission created the impression of a party that still lacked a full plan for government. 

But ahead of the Budget next week, Labour has radically updated the policy. It has pledged to guarantee a "paid starter job" for every young person claiming JSA for more than a year, and every adult claiming it for more than two, for the entirety of the next parliament. The policy will be financed in its first year by a repeat of the bank bonus tax (which Labour is keen to emphasise will only be used to fund this programme) introduced by the last government and for the rest of the period by reducing tax relief on pension contributions for those earning over £150,000 from 45p to 20p (the same rate as a basic taxpayer).

The party's aim is to appear both compassionate - the long-term unemployed will not be left to languish on the dole - and tough - those who are out of work must take accept any job they are offered (paying at least the minimum wage) or lose their benefits. Here's what Ed Balls will say today during a visit to a building project in south London which employs and trains young people:

It’s shocking that the number of young people stuck on the dole for more than a year has doubled under David Cameron. For tens of thousands of young people who cannot find work this is no recovery at all.

We’ve got to put this right. So if Labour wins the next election we will get young people and the long-term unemployed off benefits and into work.

The government will work with employers to help fund paid work with training for six months. It will mean paid starter jobs for over 50,000 young people who have been left on the dole for over a year by this government.

But it will be a tough contract – those who can work will be required to take up the jobs on offer or lose their benefits. A life on benefits will simply not be an option.

After the global banking crisis and with bank bonuses soaring again this year, it’s fair to pay for our jobs plan with a repeat of Labour’s tax on bank bonuses. We need a recovery for the many, not just a few at the top.

As a country we simply cannot afford to be wasting the talents of thousands of young people and leaving them stuck on the dole for years on end. It’s bad for them, it’s bad for our economy and it’s bad for taxpayers who have to pay the bill.

Both the policy itself and the tax changes that will pay for it are smart politics. While the Tories never miss an opportunity to boast about their record on jobs (which is better than that on wages), Labour can highlight persistent problems such as the doubling in long-term youth unemployment - and offer a concrete plan to do something about it. The programme is modelled on the successful Future Jobs Fund, which the coalition cancelled upon entering office, only for a subsequent DWP study to show that it had been an unambiguous success with a net benefit to the economy of £7,750 per participant. 

The greatest challenge for Labour is simply convincing the public that it is possible. Many voters understandably respond by asking "how can you guarantee a job?" But Labour has been clear on the details this morning. The government will pay for workers' wages and employer’s national insurance contributions for 25 hours a week over a period of six months. Businesses bidding for government funds will need to demonstrate that the jobs are additional and will not lead to someone else losing their job or having their hours reduced. At the end of the six months, participants will be required to undergo training provided by the employer as well as "intensive job-search activity" for a permanent position. 

Based on current claimant count levels, the House of Commons Library estimates that the cost of the policy will be £1.9bn in the first year and £900m a year in the following years. The figures do not include the anticipated reduction in the benefits bill and the savings that will be achieved by scrapping existing government schemes. 

The tax changes are also designed to create beneficial dividing lines with the Tories. While George Osborne battles in Brussels to prevent the introduction of an EU cap on bank bonuses, Labour has pledged to tax them to fund jobs for the young. Importantly, the tax will also apply to allowances paid by banks to avoid the new cap (which limits bonuses to 100 per cent of annual salaries, or 200 per cent with shareholder approval).

The plan to restrict pension tax relief has been attacked as "another raid" by the Daily Mail and other papers, but few voters will shed tears for the 1.5 per cent fortunate enough to earn over £150,000 a year (who, as Labour never misses a chance to point out, have received an average £107,500 tax cut from the coalition). It's worth recalling that before the 2012 Budget, Danny Alexander called for the government to adopt a similar policy, noting that "If you look at the amount of money that we spend on pensions tax relief, which is very significant, the majority of that money goes to paying tax relief at the higher rate". However, rather than scrapping higher rate relief, Osborne has reduced the annual tax-free pension allowance from £50,000 to £40,000 (having already reduced it from £255,000) and the lifetime allowance from £1.5m to £1.25m (having already reduced it from £1.8m). As a result, basic rate taxpayers are still subsidising the pension contributions of the highest earners in the country. Balls's proposal is a neat way of reopening this particular coalition divide.

George Eaton is political editor of the New Statesman.

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I was wrong about Help to Buy - but I'm still glad it's gone

As a mortgage journalist in 2013, I was deeply sceptical of the guarantee scheme. 

If you just read the headlines about Help to Buy, you could be under the impression that Theresa May has just axed an important scheme for first-time buyers. If you're on the left, you might conclude that she is on a mission to make life worse for ordinary working people. If you just enjoy blue-on-blue action, it's a swipe at the Chancellor she sacked, George Osborne.

Except it's none of those things. Help to Buy mortgage guarantee scheme is a policy that actually worked pretty well - despite the concerns of financial journalists including me - and has served its purpose.

When Osborne first announced Help to Buy in 2013, it was controversial. Mortgage journalists, such as I was at the time, were still mopping up news from the financial crisis. We were still writing up reports about the toxic loan books that had brought the banks crashing down. The idea of the Government promising to bail out mortgage borrowers seemed the height of recklessness.

But the Government always intended Help to Buy mortgage guarantee to act as a stimulus, not a long-term solution. From the beginning, it had an end date - 31 December 2016. The idea was to encourage big banks to start lending again.

So far, the record of Help to Buy has been pretty good. A first-time buyer in 2013 with a 5 per cent deposit had 56 mortgage products to choose from - not much when you consider some of those products would have been ridiculously expensive or would come with many strings attached. By 2016, according to Moneyfacts, first-time buyers had 271 products to choose from, nearly a five-fold increase

Over the same period, financial regulators have introduced much tougher mortgage affordability rules. First-time buyers can be expected to be interrogated about their income, their little luxuries and how they would cope if interest rates rose (contrary to our expectations in 2013, the Bank of England base rate has actually fallen). 

A criticism that still rings true, however, is that the mortgage guarantee scheme only helps boost demand for properties, while doing nothing about the lack of housing supply. Unlike its sister scheme, the Help to Buy equity loan scheme, there is no incentive for property companies to build more homes. According to FullFact, there were just 112,000 homes being built in England and Wales in 2010. By 2015, that had increased, but only to a mere 149,000.

This lack of supply helps to prop up house prices - one of the factors making it so difficult to get on the housing ladder in the first place. In July, the average house price in England was £233,000. This means a first-time buyer with a 5 per cent deposit of £11,650 would still need to be earning nearly £50,000 to meet most mortgage affordability criteria. In other words, the Help to Buy mortgage guarantee is targeted squarely at the middle class.

The Government plans to maintain the Help to Buy equity loan scheme, which is restricted to new builds, and the Help to Buy ISA, which rewards savers at a time of low interest rates. As for Help to Buy mortgage guarantee, the scheme may be dead, but so long as high street banks are offering 95 per cent mortgages, its effects are still with us.