2014, Labour’s year of…Winning the welfare debate

Labour holds a solid poll lead over the Tories as we head into 2014 and the electorate has bought into our agenda on improving their standards of living by putting money back into their pockets. This is a good foundation from which to build our general election manifesto.

But after four years in opposition we are still struggling to set the agenda on three key issues – the economy, immigration and welfare. On each of these, we are in danger of finding ourselves on the wrong side of the argument by trying to out-tough the Tories in their race to the bottom. Voters don’t listen to us when we say we’ll act tough on these issues.

Instead, the success of Ed Miliband’s campaign on living standards shows the electorate has a strong preference for fair and feasible alternatives to the status quo with the potential to make a real difference to their lives.

We therefore need to formulate a strategy for welfare reform that appeals to both altruism and self-interest, on the basis of the electorate’s overwhelming support for a system that looks after those who play by the rules.

Let’s first look at what we’re up against.

The Tories have pinned their hopes on the success of universal credit. I believe this policy fails the tests of practice as well as principle.

The government’s evaluation of the pilot schemes has found that 34 per cent of claimants rely on debt, support from friends and family and advance payments to top up their income; nearly 40 per cent of claimants think universal credit will only partially help them return to work; and one in four claimants struggle with the online application system.

Worse still, these problems are cropping up amongst the claimants that are meant to be the easiest ones to process. Huge sums of taxpayers’ money have been squandered on computer systems that are clearly not up to the job, and small businesses have been given a relaxation period in which they will not have to report monthly earnings to HMRC. In other words, we are back to the days of under-payments and over-payments that characterised tax credit payments.

Suc­cessive governments have deserted the system based on the duty to contribute before the right to help was conceded.  Increasingly benefits are now provided only after a test of income – a method abhorred by voters. Universal credit will prolong this method and with it the dependency of households and businesses on the welfare state.

Labour should instead seek to reward work, care, saving and honesty by building a ‘something for something’ welfare state with national insurance contributions at its heart and a cap on ‘something for nothing’ means-tested benefits.

Taxpayers currently subsidise low-paying companies’ balance sheets to the tune of £20 bn a year in means-tested top-ups. It is in the nature of most voters to want to earn their money rather than have to claim it. Surely we should be looking to build a system which encourages virtue rather than penalising it?

The Tories stole a march on us by capping annual household benefits at £26,000. This has been welcomed by an overwhelming majority of our traditional working-class supporters who could only dream of earning this kind of money in their jobs. What is there to stop the Tories from whittling away at the £26,000 and setting the cap at, say £20,000?

Here is an opportunity for Labour. We will not succeed in cutting further or faster than the Tories in a race to the bottom.

Instead, we need to grab the initiative by showing the courage to scrap universal credit, a programme which is doomed to failure, and provide voters with a long term new deal to ensure their needs are met at a time when overall government budgets are squeezed.

One of the key questions our manifesto will need to answer is, “how do we meet the rising cost of meeting the needs of the population in a way that goes with the grain of our values?”

We therefore propose a new system of mutuals based on the John Lewis Partnership governance model, funded by national insurance contributions with individual member ownership and control through elected boards.

Contributions would be raised over time so that the mutuals, covering those who pay in or who carry out key functions, like caring, will become self-sustaining.

These funds should be used to insure against the costs of unemployment, social care and pensions and pay for the NHS. Rather than getting its sticky fingers on voters’ national insurance contributions, government’s sole aim should be to establish a legal framework for the new mutuals as well as ensuring that benefit is linked to contribution. As contributions build up over time, for example, for the NHS mutual, this gives ample room for cuts in general taxation.

This would represent a radical and ambitious governing project which captures voters’ sense of fairness. As an immediate step to lay the groundwork, I propose Labour should ask the government actuary for costs, in looking at how a fundamentally restructured national insurance scheme could work.