Labour Proposes To Slash Pension Relief To Help Long-Term Jobless

Pension tax relief for top earners could be slashed to provide guaranteed jobs for the long-term unemployed, under plans unveiled by Labour.

Shadow chancellor Ed Balls said the £1 billion scheme would see 130,000 people out of work for more than two years offered posts on at least the minimum wage.

But they face losing benefits if they refuse to take the jobs.

Writing for the PoliticsHome.com website on Friday, Mr Balls said: "A One Nation approach to welfare reform means government has a responsibility to help people into work and support those who cannot, but those who can work must be required to take up jobs or lose benefits as a result - no ifs or buts."

He added: "While getting people back to work will save the taxpayer money in the long-term, 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%.

"When times are tough it cannot be right that we subsidise the pension contributions of the top 2% 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 is one of the first tax policies confirmed by Labour, which has been coming under increasing pressure to spell out its spending plans.

The announcement is also likely to be seen as positioning by the party ahead of a key Commons vote next week on capping benefit rises.

Those earning more than £150,000 would only get 20% relief on savings for their retirement, rather than the 50% maximum available now, and 45% per cent from April.

The proposal is similar to one announced by the Labour government in 2009, which was later scrapped by the coalition.

A Treasury source said Mr Balls had suggested before the Labour conference last year that he would use money raised from cutting top-rate pension relief to avoid curbs on tax credits.

"Ed Balls is trying to spend the same money twice," the source said.

"That means more borrowing and more debt - exactly how Labour got us into this mess in the first place."

Shadow work and pensions secretary Liam Byrne claimed the government's welfare reform was "collapsing in chaos".

He told BBC Radio 4's Today programme: "This is about the best way to bring the welfare bill down. A few years ago we were promised something of a welfare revolution and I think what's now clear is that Universal Credit, the Work Programme, the benefit cap are all in a state of some disarray."

He added: "To balance that budget the government is launching another raid on tax credits. Now we don't think that it's right to be attacking working families' tax credits in this way to pay for the government's failure to get Britain back to work."

Explaining Labour's scheme, he said: "We think there's a different way to do it and it rests on a basic insight that welfare to work doesn't work without jobs, and so the compulsory jobs guarantee is a simple idea, it's based on the success of the Future Jobs Fund.

"It means that anyone who has been out of work for a couple of years must find a job or we will invest in providing one and unless they take that job they will lose benefits.

"That is the best way to bring the welfare budget down, is to push people into work. Now for some people I accept that will be a culture shock, but for many more it will be a lifeline."

He added: "We would provide a subsidy for about 25 hours per week, at national minimum wage. We would work with employers who would be prepared to offer a degree of training and we would also make sure that there's time each week for intensive job search as part of a revised work programme."

The basic message, he added, had a "tough edge" and if you did not have a job then you needed to be working or training not claiming.

Director of the Institute for Fiscal Studies Paul Johnson said there could be difficulties with the changes to pension tax relief which Labour were proposing.

He told the same radio programme: "If you're saying restrict the amount on over £150,000 earners then you immediately create really pretty substantial complexities and also a lot of tax planning.

"So if you don't have this relief on over £150,000, well let's make sure I shovel all the money in while I'm a 40p tax payer and that again creates complexities and an awful lot of tax planning."

Speaking during a regional visit to Derby, prime minister David Cameron branded Labour's plans "bizarre".

Mr Cameron said: "This is sort of reheating a rather unworkable scheme that we inherited in 2010 and I think what Labour really need to focus on is their bizarre decision to support benefits going up faster than wages, which is what they are going to be voting for on Tuesday."