Ed Miliband thinks a contributory principle in welfare is the way to show voters that his party supports a ‘something-for-something’ approach. Yesterday he proposed to restore that principle, with higher entitlements for those with good records. This was at the heart of the Beveridge settlement, but has been diluted by successive governments, the current one included.
Labour has to show that it can pay for this sort of system, though, and Miliband’s answer is to raise the hurdle for contributory welfare, so that claimants must have worked longer than the current two-year period to qualify for the contributory benefit. The implication is that more people will go straight through the means test. Fewer people will be eligible, so the system can afford to be more generous.
This sounds like a clever idea, but there is a catch. Labour’s plan is to raise the hurdle to five years. So people losing out would be those who have been in work for between two and five years, but who also fall foul of the means test. What that means is that the system will take from one set of contributors – often young people who have yet to build up long work records’ – to give to another.
Demos has worked on an alternative way of funding this two-tier system to avoid this problem. The government should cut spending on Support for Mortgage Interest, a benefit for unemployed homeowners. Rather than paying the interest on people’s mortgages, as SMI does, homeowners should be automatically enrolled into private insurance schemes, with the right to opt out. Anyone not covered would have made their own choice. The principle is that if people choose to take on a mortgage, it is fair to ask them also to manage the risks associated with that choice.
This change would save upwards of £250 million each year. That money would pay for a two-tier system, with contributors receiving around £95 per week, rather than the lower £71.70 for everyone else. This approach, grounded in personal responsibility, would give Labour the confidence to look voters in the eye and talk about welfare at the next election.
Duncan O’Leary is Deputy Director of Demos
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