Labour must go for contributory welfare, not more means testing

4th June, 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 

To report anything from the comment section, please e-mail [email protected]
  • 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

  • Featured News I’m here to challenge austerity, defiant Corbyn tells Momentum as McDonnell condemns “lynch mob” MPs

    I’m here to challenge austerity, defiant Corbyn tells Momentum as McDonnell condemns “lynch mob” MPs

    Jeremy Corbyn has mounted a staunch defence of his leadership and anti-austerity agenda at a rally tonight in which John McDonnell compared Labour MPs to a “lynch mob”. Corbyn attempt to fight back after a heavy defeat in a confidence vote among the Parliamentary Labour Party (PLP) with an impassioned speech at an outdoor Momentum gathering on the steps of a London university. Around 100 people were thought to have attended the rally at the School of Oriental and African […]

    Read more →
  • Featured News Unions Respect Corbyn’s authority, trade union leaders warn MPs

    Respect Corbyn’s authority, trade union leaders warn MPs

    The general secretaries of 10 of Britain’s largest trade unions have signed a joint statement giving their continued support to Jeremy Corbyn as Labour leader. Signatories to the letter include Unite’s Len McCluskey, Unison’s Dave Prentis and the GMB’s Tim Roache – the three biggest unions, and all Labour-affiliated. They say that their members will be “looking with dismay at events in parliament” and call on Labour MPs to “respect the authority of the party’s leader”. They raise concerns that divisions […]

    Read more →
  • Featured News LIVEBLOG: Angela Eagle prepares leadership bid

    LIVEBLOG: Angela Eagle prepares leadership bid

    Corbyn is rapidly putting together a new front bench as resignations continue to pile in. While the Labour Party is in limbo, we will bring you all the Labour frontbench news as it comes through. 22.50 Corbyn and McDonnell struck a defiant tone as they addressed a Momentum meeting in London tonight. The Labour leader vowed to continue to use his position to fight austerity and engage more people in political activity. McDonnell criticised Labour MPs as a “lynch mob”. […]

    Read more →
  • News Hundreds of councillors sign pro-Corbyn letter

    Hundreds of councillors sign pro-Corbyn letter

    Over 240 Labour councillors have signed an open letter giving their continued backing to Jeremy Corbyn’s leadership and slammed the moves against him as “indulgent” and “self-defeating”. This is the latest sign of a grassroots lashback against MPs’ attempts to get rid of Corbyn as leader, following a large rally outside Parliament on Monday night, and a NewsNight survey of 50 Constituency Labour Party (CLP) chairs that found 90 per cent were still behind him. The 246 councillors say they […]

    Read more →
  • Comment Featured Uncategorized “This is not ideological. The situation has become untenable” – Ed Miliband’s letter calling on Corbyn to quit

    “This is not ideological. The situation has become untenable” – Ed Miliband’s letter calling on Corbyn to quit

    This is the letter sent by Ed Miliband to his Doncaster North constituents after he called on his successor Jeremy Corbyn to stand down as leader of the Labour Party. Dear Labour member, I am writing to explain to you why I have today called on Jeremy Corbyn to stand down as Leader of the Labour Party. I have been loyal to Jeremy throughout his tenure as Leader. I resisted calls to speak out against him when he was running for […]

    Read more →
x

LabourList Daily Email

Everything Labour. Every weekday morning

Share with your friends










Submit