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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Should London leave the UK?

Almost 60 per cent of Londoners voted to stay in the EU. Is it time for the city to say good by to Brexit Britain and go it alone?

Amid the shocked dismay of Brexit on Friday morning, there was some small, vindictive consolation to be had from the discomfort of Boris Johnson as he left his handsome home in EU-loving Islington to cat-calls from inflamed north London europhiles. They weren’t alone in their displeasure at the result. Soon, a petition calling for “Londependence” had gathered tens of thousands of names and Sadiq Khan, Johnson’s successor as London mayor, was being urged to declare the capital a separate city-state that would defiantly remain in the EU.

Well, he did have a mandate of a kind: almost 60 per cent of Londoners thought the UK would be Stronger In. It was the largest Remain margin in England – even larger than the hefty one of 14 per cent by which Khan defeated Tory eurosceptic Zac Goldsmith to become mayor in May – and not much smaller than Scotland’s. Khan’s response was to stress the importance of retaining access to the single market and to describe as “crucial” London having an input into the renegotiation of the UK’s relationship with the EU, alongside Scotland and Northern Ireland.

It’s possible to take a dim view of all this. Why should London have a special say in the terms on which the UK withdraws from the EU when it ended up on the wrong side of the people’s will? Calling for London to formally uncouple from the rest of the UK, even as a joke to cheer gloomy Inners up, might be seen as vindicating small-town Outer resentment of the metropolis and its smug elites. In any case, it isn’t going to happen. No, really. There will be no sovereign Greater London nation with its own passport, flag and wraparound border with Home Counties England any time soon.

Imagine the practicalities. Currency wouldn’t be a problem, as the newborn city-state would convert to the euro in a trice, but there would be immediate secessionist agitation in the five London boroughs of 32 that wanted Out: Cheam would assert its historic links with Surrey; stallholders in Romford market would raise the flag of Essex County Council. Then there is the Queen to think about. Plainly, Buckingham Palace could no longer be the HQ of a foreign head of state, but given the monarch’s age would it be fair to turf her out?

Step away from the fun-filled fantasy though, and see that Brexit has underlined just how dependent the UK is on London’s economic power and the case for that power to be protected and even enhanced. Greater London contains 13 per cent of the UK’s population, yet generates 23 per cent of its economic output. Much of the tax raised in London is spent on the rest of the country – 20 per cent by some calculations – largely because it contains more business and higher earners. The capital has long subsidised the rest the UK, just as the EU has funded attempts to regenerate its poorer regions.

Like it or not, foreign capital and foreign labour have been integral to the burgeoning of the “world city” from which even the most europhobic corners of the island nation benefit in terms of public spending. If Leaver mentality outside the capital was partly about resentment of “rich London”, with its bankers and big businesses – handy targets for Nigel Farage – and fuelled by a fear of an alien internationalism London might symbolise, then it may prove to have been sadly self-defeating.

Ensuring that London maintains the economic resilience it has shown since the mid-Nineties must now be a priority for national government, (once it decides to reappear). Pessimists predict a loss of jobs, disinvestment and a decrease in cultural energy. Some have mooted a special post-Brexit deal for the capital that might suit the interests of EU member states too – London’s economy is, after all, larger than that of Denmark, not to mention larger than that of Scotland, Wales and Northern Ireland combined – though what that might be and how that could happen remain obscure.

There is, though, no real barrier to greater devolution of powers to London other than the political will of central government. Allowing more decisions about how taxes raised in the capital are spent in the capital, both at mayoral and borough level, would strengthen the city in terms of managing its own growth, addressing its (often forgotten) poverty and enhancing the skills of its workforce.

Handing down control over the spending of property taxes, as set out in an influential 2013 report by the London Finance Commission set up by Mayor Johnson, would be a logical place to start. Mayor Khan’s manifesto pledged to campaign for strategic powers over further education and health service co-ordination, so that these can be better tailored to London’s needs. Since Brexit, he has underlined the value of London securing greater command of its own destiny.

This isn’t just a London thing, and neither should it be. Plans are already in place for other English cities and city regions to enjoy more autonomy under the auspices of directly elected “metro mayors”, notably for Greater Manchester and Liverpool and its environs. One of the lessons of Brexit for the UK is that many people have felt that decisions about their futures have been taken at too great a distance from them and with too little regard for what they want and how they feel.

That lesson holds for London too – 40 per cent is a large minority. Boris Johnson was an advocate of devolution to London when he was its mayor and secured some, thanks to the more progressive side of Tory localism. If he becomes prime minister, it would be good for London and for the country as a whole if he remembered that.  

Dave Hill writes the Guardian’s On London column. Find him on Twitter as @DaveHill.