Labour mulls the return of social insurance but should pensions pay for it?

7th April 2013

With the Conservatives placing a maximum cap on welfare payments last week, it is now Labour’s turn to give its riposte. The Opposition did not support what it saw as the blunt instrument of a £26,000 welfare benefit cap.

The Observer has unsurprisingly been chosen by Labour to outline the plans of shadow work and pensions secretary Liam Byrne. This would see benefits being flexible or in other words higher depending on how long a person had contributed to tax system. Labour argues that the plans would see it returning to the principles of the architect of the welfare state Sir William Beveridge. Of course the Government claimed it was doing exactly the same thing last week.

The Labour idea is lacking in detail but is one to watch. It comes with a bold promise to bring us back to something approaching full employment.

Of more interesting to this website, it might return certain benefits particularly some form of unemployment benefit or incapacity benefit back to its social insurance roots. Whether it can be updated is one issue. To work, it would surely need to offer a substantial increase on current benefits but getting anywhere near a replacement figure would surely be very difficult.

Even under a new system, and accepting that every individual case is different, we think income protection and other forms of insurance probably offer a better solution though it may be more expensive.

We wonder if Labour’s ideas will ever involve the private sector insurers to help create its new system. It will be tough, however, to find anything that rivals the state pension in terms of what you get for what you put even if the state pension gets less generous with all the changes happening now.

But while we are talking about pensions, one final thing to note – some of the financing for full employment will come from taxing bankers’ bonuses. High as they are, we’re not sure that quite adds up. Some will apparently come from pension tax relief presumably higher rate relief. Things could get less generous if have a reasonable amount of money saved. Of course, that is also a form of insurance, because it means people can look after themselves financially in retirement. There may come a time, when politicians will stop interfering with this sort of insurance to help them fund others.

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