View from City Road: Compulsory redundancy insurance won't fly

That old chestnut - the idea of introducing compulsory redundancy insurance for all mortgage holders - is apparently in the air again; it is easy to see why the Government should find it attractive.

Stories of unemployed Hampstead residents being paid pounds 1,800 a month through income support to remain in their lavish mansions have already sown the seeds of disquiet about the current system. It is not difficult to find pub politicians who contend that those who can afford to buy their own houses should sell them, rather than rely on the State, if they get into financial difficulties. Most attractive of all, it would save pounds 1.2bn - or 1.5 per cent of the soaring benefits bill.

But even the most cursory analysis reveals fundamental flaws. First, it discriminates against homeowners in favour of tenants - who already take more than seven times as much in housing benefit as homeowners do in mortgage payments. Having spent years encouraging people to buy their own homes, it makes little sense to introduce policies that tempt them back into rented accommodation again.

Second, it would be virtually impossible to make it compulsory. Quite apart from the problem of policing it, no insurer will take on an unacceptable level of risk. Is the Government really going to be happy to see those in high-risk jobs - like miners, for example - denied a mortgage because they cannot get insurance cover?

If the system is not made compulsory, however, much of the cost would simply be transferred from one part of the system to another, as redundant homeowners sold up and moved to a rented home.

Sorry, Mr Lilley, but it won't fly.