Tag Archives: national salary insurance

A middle class safety net

A while back, Labour started talking about bolstering the contributory element to the benefits system. It’s now expanded on this theme by suggesting that unemployed people should be offered loans of up to 70% of their previous salary (up to a maximum of £200 per week) if they have already made sufficient contributions, in a student loans kind of system. The aim is to ensure that people who lose their jobs don’t lose everything else because they’re unable to repay their mortgage and other debts. If they continue down this path, I suspect they’ll announce the loan would be secured against the claimant’s home after the mortgage. That way, the State wouldn’t lose out if the person became long term unemployed and had to sell their house.

As a middle class person with a mortgage who lost my job, I’m unconvinced as to the practical assistance this will give. These are just some initial thoughts. We ought to get more detail from Labour in due course and other people will be digesting the proposal too. I only got statutory redundancy pay but, added to pay in lieu, ended up with six months pay in total. Many people in similar circumstances would get more than statutory redundancy. Why should I dip into the public purse and increase my existing debts at this point? I’ve got enough to be going on with during the six months period the salary loan would be available.

Because it’s capped at £200 a week, the loan wouldn’t often cover more than just the borrower’s mortgage, if they have one. Many people with mortgages also have insurance against redundancy. Having used sickness insurance, I am absolutely certain that the insurers will fight tooth and nail to avoid paying out under policies people have paid into, often for years, if a government put alternative support on the table. It’s usually a safe bet to suggest regulations to implement new schemes like this will be littered with loopholes and they’d need to be unusually careful to avoid just benefitting insurers.

Since the banking crisis, mortgage lenders have been obliged to help customers who lose their jobs and get into arrears. It was Labour who insisted on this. Aren’t we helping the lenders more than their customers if we introduce a new scheme under which public money pays the mortgage? You could argue that the interest to repay the government would be lower than the interest accruing on the mortgage arrears but, still. Will Labour’s loan scheme work in addition to the requirement on lenders to give time? It all seems rather pointless unless it is.

I should mention the Support for Mortgage Interest scheme we already have. That provides state assistance for people who have a mortgage and aren’t able to get a new job by the time the right to claim kicks in. This happens after the end of the support Labour’s new scheme would give, at which point things really would be looking pretty bleak for most people with a mortgage in terms of their chances of keeping their home.

The emphasis in the article is on home owners (because Labour feel it’s politically expedient to offer support to home owners as part of the all party battle for the “squeezed middle”?) but I’d have thought that a scheme like this would be more useful to renters, who won’t get the same kind of leeway on arrears of rent that owners get on mortgage arrears and are less likely to have insured against redundancy.

Where will the money come from? Labour haven’t even been willing to commit to reversing the bedroom tax. They agreed with the Government that it shouldn’t reimburse people wrongly sanctioned under a flawed Workfare scheme. It’s all well and good to say people who make sufficient contributions will be entitled to use the salary loan scheme but the tax and national insurance we pay in now is already allocated elsewhere and is desperately needed for those purposes. They could introduce a scheme of voluntary overpayments but it would take time to build up a fund and people are losing their jobs now. With inflation rising and salaries falling in real terms, I’m not convinced people would overpay anyway. If anything’s coming out of salaries right now, it’s likely to be pension contributions.

It may be a middle class vote winner to offer assistance but I’m not convinced it will stand up to scrutiny or that the policy will survive the two year wait up to the next election. And, for me, the idea of taking public money from the people who need it most when I’ve got another five months worth of salary in the bank makes me feel deeply uncomfortable. It all feels a bit too much like Labour is making policy based on a review of #middleclassproblems on Twitter.