Last updated: January 4, 2013 8:35 am

Labour eyes pension grab to fund jobs

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Britain’s top earners would face a £1bn tax grab on their pensions contributions to fund a compulsory job scheme for the long-term unemployed, under plans to be set out by Labour on Friday.

Ed Balls, the shadow chancellor, is proposing in a rare new policy to target the pensions of the rich to pay for the programme that would tackle the “scarring” effect of long-term joblessness.

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Liam Byrne, shadow work and pensions secretary, said the proposal was the “best way to bring the benefits bill down” and it was tough but fair to dock benefits if people refused to work when offered a job.

“Welfare to work needs jobs if it is to work properly,” he told the BBC’s Today programme on Friday morning. “So we’d invest in creating jobs but it has got to have a tough edge.”

The plan follows his previously proposed £2bn tax on bank bonuses, which would partly fund a youth job scheme.

Mr Balls’ initiative reflects a view in Labour’s high command that the party needs to set out concrete policies in 2013 to boost its economic credibility and to answer Tory claims it has no strategy for tackling welfare costs.

The shadow chancellor would fund the work programme by limiting tax relief on pension contributions for people earning more than £150,000 to 20 per cent from the new top rate of 45p, raising about £1bn.

As contributors can only claim a maximum of £40,000 tax free a year, they could face an additional tax bill of £10,000.

John Ralfe, a pensions expert, said: “This is a convoluted way of increasing tax on higher rate earners and it looks like a backdoor way of lobbying for an increase in income tax for top earners.”

Mr Balls would use the money raised to give a “jobs guarantee” for adults who had been unemployed for more than two years, with the government picking up the tab for the minimum wage and national insurance costs.

The jobs in the private or voluntary sector would last six months and Mr Balls hopes that this reintroduction to the workplace would help people find a permanent job. Those who refused to take part would face penalties.

“We know from the 1980s it has a scarring effect on individuals and communities, damages our economy and society and builds up long-term costs for the taxpayer,” Mr Balls writes for Politics Home.

Labour says there are 129,400 adults aged over 25 who have been out of work for 24 months or more. Mr Balls’ aides say the policy is not a manifesto commitment but sets out his priorities.

Mr Balls contrasts his policy with what he claims is the “nasty” approach of George Osborne, the chancellor, who has criticised those he claims prefer not to work and stay at home “with the blinds down”.

Mr Osborne has proposed capping working age benefit rises at 1 per cent for the next three years and will put the policy to a Commons vote next week, a move he sees as a trap for Labour.

Mr Balls will argue against the benefit curbs and will deploy his new policy as evidence that Labour has a positive plan to cut the welfare bill by getting people back to work.

Additional reporting by Hannah Kuchler

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