Labour has proposed limiting tax relief on pension contributions for anyone earning over £150,000 to 20% instead of the new top rate of 45p, in a bold bid to raise £1bn to tackle long-term unemployment.

Under the scheme, announced by shadow chancellor Ed Balls (pictured) on the Politics Home website, the plan is to fund a compulsory jobs guarantee for around 130,000 people that have been out of work for 24 months or more.

He said: 'A One Nation approach to welfare reform means government has a responsibility to help people into work and support those who cannot, but those who can work must be required to take up jobs or lose benefits as a result - no ifs or buts.

'While getting people back to work will save the taxpayer money in the long-term, the up-front costs of Labour's jobs contract can be funded by reversing the government's decision to stop tax relief on pension contributions for people earning over £150,000 being limited to 20%.

'When times are tough it cannot be right that we subsidise the pension contributions of the top 2% of earners at more than double the rate of people on average incomes paying the basic rate of tax.

'£1bn-a-year would fund a compulsory jobs guarantee initially for all those out of work for 24 months or more - which we would seek to reduce to 18 or 12 months over time.'

Under the plans, any unemployed person that refused a job on offer could have their benefits cut.

But Prime Minister David Cameron dubbed the scheme as "bizarre", claiming the plan would simply "reheat" old plans.

He told Sky News: 'I think what Labour really need to focus on is their bizarre decision to support benefits going up faster than wages, which is what they are going to be voting for on Tuesday'.