Three problems with Ed Balls’s new welfare proposal

By Peter Hoskin
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Ed Balls’s article for PoliticsHome is a grand piece of political positioning. Labour have already gone down the road of attacking the Coalition for excessive benefit cuts, but they also don’t want to appear too lenient on welfare themselves; and so the shadow chancellor offers a policy that caters to both impulses:

“Today we are urging the government to go even further, because we won't get the costs of welfare down if adults who can work are languishing on the dole for years and years on end. So 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.”

This is, to use Mr Balls’s words, “fair” because it puts the long-term unemployed into work (for six months), yet also “tough” because it contains the threat of benefits being withdrawn. But does it make sense? Three potential problems stand out from a first reading of the article:

1) What’s guaranteed? Okay, there are two points to make here. The first is that Ed Balls isn’t actually guaranteeing that a Labour government would introduce this policy in 2015 — this is, instead, a policy that they would introduce were they in power now. A charitable interpretation of this is that they are urging the policy on the Coalition. A less charitable interpretation is that it doesn’t count as a real policy proposal at all. Take your pick.

And the second point is about the wider idea of “guarantees”. Ed Miliband loves these things — so much so that (as I once counted) the last Labour manifesto (which he authored) contained over 50 references to them, from a guarantee over hospital waiting times, to one that’s more or less identical to the one being mooted today. I guess the allure is partially political: Labour offer to spend public money to “guarantee” you this service or that, hoping that the Tories won’t match their pledge. But the implementation is deeply problematic. As the Economist’s Bagehot column pointed out in 2009, the Government could face an “orgy of litigation” if people don’t get what they think is owed to them.

In the case of this Jobs Guarantee, the question then becomes whether a Labour government really could guarantee these new jobs. Are private sector companies signed up? Or would they be in the public sector? If the latter, might the taxpayer costs be greater than Mr Balls would have us believe? Ed Miliband’s party isn’t really saying enough about all this.

2) And how’s it funded? The blunt answer to this question is the one provided in Mr Balls’s article: “the upfront costs of Labour’s jobs contract can be funded by reversing the government’s decision to stop tax relief on pension contributions for people earning over £150,000 being limited to 20 per cent.” But, as the Tory Treasury Twitter account has been pointing out, isn’t this money that Labour have earmarked for spending before now? Back in March, Mr Balls proposed reducing the rate at which top rate taxpayers can claim pensions tax relief from 50 per cent to 26 per cent — and then using the money to reverse the Government’s cuts to tax credits.

Labour’s response comes in two parts: first, that they are no longer committed to using the money to restore tax credits; and, second, that they now want to reduce the tax relief to 20 per cent, not just 26 per cent.

But that isn’t really adequate. The Opposition can hardly claim to be fiscally responsible if they keep recycling their few ideas for raising revenue. I mean, what’s to say that the same cut to pensions tax relief won’t be used to fund another policy next year? And, if so, how would the Jobs Guarantee be paid for then?

3) “Strivers” and “scroungers”? One of the most strident claims in Ed Balls’s article is that…

“Day after day we see Tory and Lib Dem Ministers claim they are targeting the work-shy and benefit ‘scroungers’. But it’s no wonder even Cabinet Ministers have told the newspapers they are uncomfortable with these smears. Because the truth is very different.

Two-thirds of people who will be hit by David Cameron and George Osborne’s real terms cuts to tax credits and benefits are in work. Millions of pensioners will also pay more in April as their ‘granny tax’ takes effect. And next week child benefit will be taken away from thousands of middle income families.”

…which rather muddies the truth itself.

As the Spectator’s Isabel Hardman highlights, it’s actually quite difficult to find examples of Tory ministers using the word “scroungers”. David Cameron dropped it in 2010, but there have been few — perhaps no — sightings since.

What’s left are examples such as George Osborne’s most recent conference speech, in which he railed against the “next-door neighbour sleeping off a life on benefits”. But, then, this is also a theme that Ed Balls’s boss — one Mr Miliband — has developed. In a speech in 2011, the Labour leader began with the story of a long-term Incapacity Benefit claimant whom he thought could be in work. “It’s just not right for the country to be supporting him not to work,” he continued, “It’s not about responsibility to the state, or the government, but responsibility to your neighbours, your friends and many others who you may never meet but who are affected by your actions.” And so on and so on.

This isn’t to say that the Tories should be incautious with their rhetoric. Far from it — Osborne & Co. should be very careful not to demonise the unemployed, and should not risk the impression that they take malicious glee in cutting benefits. But Ed Balls is still overstating the case.

And what of the shadow chancellor’s claim that the Coalition’s benefit cuts will also affect people who are in work? This is more forgivable because it happens to be true; but it is also a truth that David Cameron has admitted to, rather than covering it up. No doubt the next election will do much to reveal whose side the public is really on.