On Tories backing higher rate tax increases, and Labour guaranteeing jobs

Labour has proposed a guaranteed job for six months for the long term unemployed, funded by a reduction on the higher rate tax relief given to those earning over £150,000.

This is a smart, sensible announcement, politically and (more importantly), economically and fiscally.

Not least, it’s a good idea because higher rate relief for pensions contributions is widely recognised as a bad idea, and not just on the left. Whether it’s Danny Alexander, the Centre for Policy Studies, or even allies of George Osborne operating through anonymous and deniable briefing, cutting higher rate tax relief on pensions contributions is a squeeze whose time has come, whether on the right, on the left or in the centre.

Conservatives and Liberals may want to use the money higher rate tax relief “costs” for other things, but many agree that this particular tax break is one that is inefficient economically and unjust socially. Against that background, it will be much harder than usual for the Conservatives to argue that this particular “Pensions raid” is an offence against all that is right and just in the world.

Second, the Jobs guarantee policy itself is a sensible one.

Yes, it outrages the hard left, who variously object to a tax break for employers hiring the long-term unemployed1 or who regard telling people who have been out of work for two years they should take a guaranteed job as an outrageous slur on the willingness of people who’ve been out of work for two years to take jobs.2. These objections seem pretty trifling to me, especially when set against the practical effectiveness of similar measures in getting people into work, which is, it seems redundant to have to say, a good thing.

All that said, no policy is a panacea, and nor is this.

First, the numbers of people who claim unemployment benefits for over two years is relatively small. The unemployment data suggests some 450,000 are unemployed for over two years. However, the vast majority of these do not claim JSA, so don’t figure in the claimant count, and presumably would not be affected by a jobs guarantee.3.

So it’s not, and doesn’t pretend to be, a complete solution, or a ‘full employment’ programme. However, that doesn’t mean it isn’t worth doing. The success of various past jobs initiatives, from the New Deal on, show that it very much is worth doing.

Another problem is that the money might well not be there come 2015. If I were Danny Alexander or George Osborne, assiduously reading my submissions from liberal and right-wing think tanks, I’d be very tempted to take the seven billion or so I’d get from abolishing higher rate tax relief on pensions altogether and spread it around liberally.

To take an example, the Tories might choose to increase the Basic State pension, increase personal tax allowances and pay down the deficit a little faster. That would leave Labour with a billion pound spending commitment However, if Labour spent their time worrying about what George Osborne might do that puts them in a difficult position, they’d never do anything.

If the choice is action or inaction, I’d go for action every time. Besides, a jobs guarantee is a better, fairer use of that money than yet another way of boosting pensions above inflation, but that just my Generation X bitterness showing.4

So a jobs guarantee for the long-term unemployed funded by a reduction in tax reliefs for higher rate pensions contributions is a fair, useful, helpful, practical policy that would help thousands of people back to work. It’s neither uncosted, nor unrealistic, nor over-ambitious. Rather, it’s sensible, practical politics to help those who most need a helping hand, and should be welcomed across the left.

A good start to the New Year, I think.

  1. which is a bad thing, why exactly? If it was badged as an ultra generous tax credit for hiring the long-term unemployed, would the left still object? []
  2. One trouble with this argument is that the data seems to go against it. As the IFS noted when favourably reviewing the New Deal “It has also been shown (vanDen Berg et al., 2004) that policies where non-compliers incur significant sanctions are on a theoretical and empirical ground capable of producing beneficial effects in terms of employment, for the simple fact that they push up the level of effort exerted by the unemployed.” []
  3. The data I have suggests some 65,000 claimants would be affected at the moment. I am making the assumption that references to ‘face losing benefits‘ in Labour’s language means the policy is aimed at the latter, nor the former []
  4. A final problem is that there’s a bit of a cliff edge effect to the precise way we’re saying we’d raise the money. This is why, it’s thought, the government chose to reduce the amount people could claim tax relief on, not the rate. However, I think this is a manageable implementation issue. You could, for example, simply cut the amount reliefs could be claimed again, rather than increase the rate. A detail well worth noting, but not a roadblock to supporting []

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