Liam Byrne is a modernising, Blairite Labour MP, and in case you were in any doubt about that, he conducts his interview with Coffee House sitting next to a framed photograph of him with Tony Blair. The party’s Shadow Work and Pensions Secretary is well known for his modernising zeal, which has sometimes led him onto a collision course with his party grassroots and other MPs on the left. This week, though, he’s on a collision course with the Conservatives, who hope they’ve managed to corner Labour into admitting it hasn’t quite modernised its welfare policy enough to win voters back.

The Welfare Uprating Bill, launched in last week’s Autumn Statement, will see benefits rise by 1 per cent, rather than in line with inflation. That George Osborne pulled this out as separate legislation from the Finance Bill showed the Chancellor was laying an elephant trap for the Labour party, forcing it to take a clear public position on cutting the benefits bill. He has certainly wasted no time in prodding senior Labour figures rather gleefully about whether they will support or vote down the bill.

But Byrne appears more than happy to walk into this elephant trap with his eyes wide open: he believes that the Tories have laid the wrong trap, and will hit the ‘striving’ voters they are trying hardest to appeal to:

‘We’re going to fight this on a very clear argument that this is a strivers’ tax, this is punishing the people that David Cameron promised to protect at his conference, and the Tories are pushing this through at the same time as giving a tax giveaway to Britain’s richest citizens, so in many ways, in many constituencies in Britain, there will be maybe one, two millionaires who are getting a tax cut, but there will be thousands of working families seeing fewer tax credits in their pay packets.’

Byrne might think that strivers – those key C2 voters who deserted Labour in their droves at the last general election – might be put off the Tories by the uprating decision, but why does he think that benefits should rise higher than wages, regardless of whether they go to someone in work? His argument is that wages are set to rise – although not by the 5 per cent rise in inflation that benefits would have risen by:

‘Look at the OBR’s figures. The OBR says that earnings are going to grow in 2013 by 2.2 per cent and that is going to rise in 2016 to 4 per cent, so actually it’s simply not true to say that ordinary people’s incomes are rising at 1 per cent. They are not: they are rising at 2.2 per cent next year, they are rising at 4 per cent in 2016, so [Osborne] is talking nonsense, frankly.’

This is all very well, but if Labour opposes decoupling benefits from inflation, how does Byrne propose to cut the benefits bill?

‘The question in voters’ minds is not ‘is the uprating bill bad’, the question in voters’ minds is how do you bring down the welfare bill and the choice we’re determined to present is that there is a Labour way to bring down the welfare bill, and a Tory way. The Labour way is about pushing people into work, and insisting on the responsibility of work. The Tory way is about cutting working people’s tax credits.’

This focus on work includes a very clear commitment to full employment, which makes Byrne sound very ambitious indeed. He says:

If you go back to the 1945 Labour manifesto, we have always seen full employment and social security as two sides of the same coin. We can afford social security if we get Britain into work. You can’t afford good social security with rates of unemployment that are as high as they are now. The Tories have never understood this.’

He focuses initially on the housing benefit bill, which he accepts is ‘too high and we have got to look at ways to bring it down’. This was a bone of contention for Byrne and his team when the government was taking its own benefit cuts through the House of Commons: initially Labour supported the £26,000 overall benefits cap for workless families, but then the party changed its position to fight it, and has voted against the cap on numerous occasions since. But Byrne still takes a tough line on the idea of a cap:

‘The flip side of being better off in work is a benefits cap, now we think that if that is done in the right way, it makes sense. It would require some people to move, we can’t be starry eyed about that.’

Moving people from their communities won’t be something everyone in the Labour party is happy about: its policy review chief Jon Cruddas has voiced his own opposition to the idea, for instance. But the Labour cap would be split in two, with a higher rate paid for those living in London to reflect the higher cost of living in the capital. But he doesn’t plan to regionalise other benefits than those paid to cover housing costs.

Other tough stances the shadow work and pensions secretary takes include on conditionality, with plans to dock benefit payments for those under 25 who turn down a job because ‘there is no life on welfare’. But he believes that the way to cut benefits ‘is by pushing people, not into a corner, but into a job’.

That’s the stick, so where’s the carrot? The various working groups looking at the party’s welfare policy won’t report back until next year, but there are strong hints that Labour could well introduce some sort of contributory principle, and that idea has come from the research Byrne has conducted into why so many voters deserted Labour in 2010.

‘I presented to Cabinet in March 2010 the analysis that we had done in the Treasury on living standards that revealed this problem for the first time, and so I saw from January through to March 2010 that this was going to hit us like a train and sure enough it did. When you look at the seats that we lost, sure enough the squeezed middle had the balance of power then. That’s why I think we lost in 2010.

‘The numbers were pretty stark and the truth was it was too late to do anything about it. But what was going on: living standards were under pressure and that was fuelling pressure on social security because thousands of people in Britain, working people, felt they were paying a load of money into the system and getting very little back out again and that is because the world has changed a great deal.

‘That means people need different things from the welfare state, they need childcare, they need help with retraining, they need social housing, they need better protection on private pensions, they need social care, and working people don’t feel they get those things back out of welfare in spite of what they put in.’

He describes the balance in terms of what someone puts in and gets out of the welfare system as ‘completely out of whack’: ‘That’s why we will put the something for something back into social security, we’ve got to forge a new deal for working people that means they get back out things they need to get on in life.’

Although he won’t go into detail, all this suggests that Byrne’s final report on welfare policy for Labour will cause more than a few ripples in his party. Indeed, he breaks from his rather serious demeanour to laugh at some length when I ask whether it will contain some home truths for Labour. He does admit that this is the ‘hardest job I’ve ever had’, which is quite something from a man who worked on immigration under John Reid, on reorganising Number 10 under Gordon Brown, and deficit reduction with Alistair Darling. But he insists that he has the support of his local party on this, and that critics won’t deter him.

‘Some on the left say to me: it’s not your job to think up policy, it’s just your job to oppose. Well, actually, I think it’s my job to do both, and I’m determined to do both.’

Tags: Autumn statement, Benefits, Labour, Liam Byrne, UK politics, Welfare, Welfare Uprating Bill