Labour must go for contributory welfare, not more means testing

June 4, 2013 5:30 pm

£100 million may not be an awful lot of money in the scheme of things – around 0.05% of the welfare budget – but Ed Balls’ announcement yesterday that Labour would means-test the winter fuel allowance was an important political moment.

First the good news. Putting pensioners’ benefits up for discussion is a positive step. David Cameron was wrong to promise to protect them all, regardless of circumstances, at the last election and Gordon Brown was wrong to back Cameron into a corner in the live debates. Pensioner benefits account for around 40% of all welfare spending, so protecting them has put huge pressure on the working age welfare budget to bear the burden of austerity.

The bad news is there are problems with means testing both in principle and in practice. In principle, we should aim for a welfare system that helps people in need, but also encourages honesty and rewards work and saving. This is what Maurice Glasman calls ‘incentives to virtue’. Means testing tends to do the opposite of these things and is unpopular as a result.

In practice means testing complicates the system and requires more bureaucracy to check exactly who is entitled to what. All for just £100 million. The real reason pensioner benefits are so expensive is that we are all living longer. So the question we should be asking is whether it is right that people can claim the winter fuel allowance as early as age 62, not whether means testing could save a small fraction of the overall spend.

More generally, Labour needs to get its story straight on welfare. What is the big idea? Focusing scarce resources on the most needy, as yesterday’s announcement suggests, or strengthening ‘the old principle of contribution’ as Liam Byrne promised not so long ago? Labour would do well to focus more the second of these two approaches, especially if it wishes to restore the public’s faith in working age welfare. The international evidence shows that the most generous welfare states are also those with stronger contributory elements.

This week Demos publishes proposals on how to do this. The government could create a two-tier system, with higher benefits for those with strong work records – around £95 per week job seekers allowance, compared to the £71.70 that everyone gets at the moment, regardless of their employment record. This would be paid for by cutting spending on Support for Mortgage Interest (SMI). SMI is a benefit specifically for homeowners: it covers the interest on up to £200,000 of loans or mortgages when people are out of work.

There is a principle behind this proposal: taking on a mortgage is a choice – and people should take responsibility for insuring themselves against the risks associated with that choice. To that end, people should be automatically enrolled into mortgage payment protection insurance (MPPI), providing those customers with the chance to opt out of such insurance. This would mean that anyone not insured against their mortgage interest costs would have actively made that choice. All others would be insured at a maximum cost of around £33 per month, less than the average phone bill.

Making these changes would help Labour reclaim the mantle of personal responsibility, with homeowners insuring themselves against risks incurred by their own choices. It would encourage greater social solidarity, by reassuring people that those who have contributed to the welfare system will get the most out of it. And it would not cost a penny more than the current approach.

On Thursday Ed Miliband will make the second big Labour speech of the week, focusing on welfare. Here’s hoping the contributory principle is at the heart of it.

Duncan O’Leary is Deputy Director of Demos 

  • AlanGiles

    ” This is what Maurice Glasman calls ‘incentives to virtue’”

    Thats fine – just as long as their Lordships MacKenzie and Cunningham, and MPs become as virtuous as the people they lecture.

  • i_bid

    So home-ownership is a ‘choice’ and not a right now, and do these proposals include regulating our exploitative and unaffordable renting sector? What do these ‘strong work records’ mean? Living in an area that has been hit hard firstly by de-industrialisation, and now public sector job losses, whilst starved of investment caused by an absurdly distorted economy towards the London South East – it sounds remarkably like heartland Labour territory like this would be punished under these proposals ignoring the scarcity of jobs through no fault of our own.

  • Monkey_Bach

    Whenever anybody is needed to invent a scheme, scam, or ruse to enable Labour to snatch defeat from the jaws of victory Liam Byrne and/or DEMOS are always willing step forward and oblige.

    Eeek.

  • Quiet_Sceptic

    So homeowners have to insure themselves but what about those renting?

    Your argument seems to be that people who buy have a responsibility to insure themselves against homelessness but those who rent should be insured by the state through the housing benefit. system. Why the inconsistency?

    There’s no logic or reason to it, why should the state favour tenants over owners, in effect providing a subsidy to the rental sector?

    What the state ought to do is provide the same level of support regardless of housing type, the owner can use it to pay their mortgage interest, the renter can put it to their rent. Fair and equal treatment of both.

  • Mike Homfray

    I’m not sure if it would be possible at the moment. The reason brown rejected Frank Field’s relatively modest ideas based on contribution in 97 was the sheer cost of establishing the initial level playing field which has to exist to make it at all fair.

    Means testing has many built in problems but I don’t see a very easy escape from it

Latest

  • Comment The next chapter in Labour’s internationalist story

    The next chapter in Labour’s internationalist story

    Internationalism, a movement advocating greater economic and political cooperation among nations for the benefit of all, has been a strong tradition within the Labour party from the beginning. Our values and ideals have always looked beyond our shores and have contributed to influencing and shaping Britain’s role in an increasingly interdependent world. We have a record that we can be proud of. We supported the establishment of the League of Nations in the inter-war years. We backed Indian independence and […]

    Read more →
  • News Labour-run council becomes the first to offer discount rates for paying the living wage

    Labour-run council becomes the first to offer discount rates for paying the living wage

    Brent’s Labour-run council will today become the first in the country to give discounted business rate to companies that pay the living wage. Under this policy, if employers in the area pay all of their workers £9.15 (the London Living Wage) or more, they could save up to £5,000 on business rates. 30% of this will be paid by the council, while government policy means that central government will pay half and the Greater London Authority will pay the remaining […]

    Read more →
  • News Labour will force a vote to stop shale gas extraction

    Labour will force a vote to stop shale gas extraction

    Over the weekend, Jim Murphy announced that a Scottish Labour government would put a stop to fracking. Now Caroline Flint, Shadow Secretary of State for Energy and Climate Change and Maria Eagle, Shadow Secretary of State for the Environment, Food and Rural Affairs, have announced Labour will force a vote to stop developments regarding shale gas extraction. In an article for the Guardian, the two leading Labour politicians explain that “shale gas extraction cannot go ahead in the UK without […]

    Read more →
  • News Mandelson says Labour need to prepare for a coalition with the Lib Dems

    Mandelson says Labour need to prepare for a coalition with the Lib Dems

    Peter Mandelson, former Labour MP and now peer in the House of Lords, has warned that Labour should prepare for a potential coalition with the Lib Dems. Mandelson, who also voiced criticism of Labour’s mansion tax proposals last week, stressed that he still thought it was possible for Labour to win an outright majority but that they should be prepared for all eventualities. Mandelson was one of the leading figures who attempted to orchestrate a coalition with the Lib Dems in […]

    Read more →
  • Featured 15 Labour MPs release statement calling for change in party policy direction

    15 Labour MPs release statement calling for change in party policy direction

    A group of 15 Labour MPs have issued a public statement this morning, expressing concern about elements of Labour’s policy agenda, and urging a change of course in three key areas. The letter – signed by MPs on the left of the Parliamentary Labour Party – calls for an alternative to Labour’s current deficit reduction plans, public ownership of the railways and a return to collective bargaining and employment rights in the workplace. Update: This post originally listed 16 MPs […]

    Read more →