Ever since the coalition began its programme of welfare cuts, Labour has argued that the best way to reduce the benefits bill is to get more people into work. Now, ahead of next Tuesday’s debate on the Welfare Uprating Bill (which will enshrine in law George Osborne’s pledge to cap benefit increases at 1 per cent for the next three years), the party is seeking to show how it would achieve that goal.
In one of the most significant Labour policy announcements since 2010, Ed Balls has said that the party would introduce a compulsory jobs guarantee for long-term unemployed adults to be funded by reducing tax relief on pension contributions for those earning over £150,000 from 50p to 20p. The guarantee would initially apply to those who have been out of work for 24 months, but over time Labour would seek to reduce this limit to 18 or 12 months. The party has already proposed a compulsory youth jobs guarantee (one component of Balls’s “five point plan”) to be funded through a £2bn tax on bank bonuses. The new policy would apply to the 129,400 adults over the age of 25 who have been unemployed for 24 months or more, an increase of 88 per cent since the same month last year and a rise of 146 per cent in the last two years. All would be paid at least the minimum wage.
In an article for PoliticsHome on a “one nation” approach to welfare reform (note Balls’s adoption of his leader’s favoured motif), the shadow chancellor writes:
Ed Miliband, Liam Byrne and I are today calling for a compulsory Jobs Guarantee for the long-term unemployed.
This is the One Nation jobs contract Labour would introduce right now: the government will ensure there is a job for every adult who is long-term unemployed, and people out of work will be obliged to take up those jobs or face losing benefits.
Our Jobs Guarantee for adults will build on the model of the Future Jobs Fund with government working with the private and voluntary sectors to ensure there is a job paying the minimum wage for every long-term unemployed person.
Labour’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 or lose their benefits (“no ifs or buts,” says Balls).
As I said above, the policy would be funded by limiting pension tax relief for the highest earners, a change announced by the last government but reversed by the coalition before its scheduled introduction in April 2011. At present, additional rate taxpayers enjoy relief of 50 per cent (45 per cent from April) on their pension contributions. Balls’s proposal would see their tax relief limited to the 20 per cent received by basic rate taxpayers, meeting the £1bn-a-year cost of the policy. He writes:
When times are tough it cannot be right that we subsidise the pension contributions of the top 2 per cent of earners at more than double the rate of people on average incomes paying the basic rate of tax. £1 billion a year would fund a compulsory jobs guarantee initially for all those out of work for 24 months or more – which we would seek to reduce to 18 or 12 months over time.
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, George Osborne used his Autumn Statement to reduce 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.
Labour can no longer be accused of lacking positive proposals but the coalition will continue to challenge the party to say how it would meet the cost of uprating benefits in line with inflation, rather than the 1 per cent increase proposed by Osborne. In an article for the Times (£) earlier this week, Nick Clegg wrote: “Labour must show how they’d pay for it. Would they cut hospital budgets? Schools? Defence?”
Balls and Miliband are fond of pointing out that the coalition is simultaneously reducing the top rate of income tax from 50p to 45p (worth an average of £107,500 to the country’s 8,000 income millionaires) but they are reluctant to commit the revenue from a reintroduced top rate so early on in the parliament.