Left Watch

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Labour seek to protect middle class benefits like the Winter Fuel Allowance with taxes on banks and 'the rich'

By Tim Montgomerie

The future of universal benefits may become one of the defining battles of this Parliament.

I haven't established David Miliband's position on the future of the £53bn of welfare payments that go to all people, regardless of income, but I should imagine that it will be similar to the one set out by Ed Miliband in The Observer:

"[The government] plan to pay the deficit down on the backs of those with low and middle incomes, with a threat to universal benefits such as child benefit and the winter fuel payment. It seems even David Cameron's TV debate promises to families and the elderly are to be sacrificed. It is essential that we defend these payments. The alternative is a dangerous erosion of the social solidarity that comes from a universal system. To do so, I would raise taxes on the banks over and above the timid levy proposed by the government and I would raise revenue from those at the top, continuing the 50p rate permanently at £150,000, and tackling tax avoidance."

Miliband Jnr's numbers may not add up but a defence of benefits like the Winter Fuel Allowance could be difficult for David Cameron, particularly after he vowed to protect them during the election debates with Gordon Brown.

I support revisiting the pledges on middle class welfare as a necessary way of funding the kind of welfare reform that will incentivise the long-term jobless to take and stay in work. Ed Miliband proposes higher taxes on the wealthy as an alternative way forward. These taxes, of course, would threaten the economic growth upon which deficit reduction and job creation depends. Such taxes may also mean that the Daily Mail - sympathetic to keeping universal benefits - would not be able to support Labour's approach.

On Platform recently David Alexander, a senior advisor to John Howard's Australian government, examined his own country's experience. He noted that Australia has become "the means testing and targeting capital of the developed world, with the lowest share of transfers going to the wealthiest half of the population of any country in the OECD." The result is that Australia had the lowest government spend/ GDP ratio in the OECD, equal with South Korea. The associated lighter tax burden can only be good for long-term economic growth.

Looking at the likely political terrain that will emerge from all this, Mary Ann Sieghart may have exaggerated the divide in an article for yesterday's Independent but it's near enough to the truth:

"The left-right divide at the next election is likely to be between one party arguing for a universal welfare state in which people who put money in can expect to get something out, and two parties arguing for a pared-down version that only helps those in need. In that case, Labour would be campaigning for the middle classes and the Coalition for both the poor and the rich. If you thought coalition government threw up unexpected political alignments, you ain't seen nothing yet."