Radical proposal would entitle jobless to receive up to 70% of their previous income, then repay the extra on returning to work

Plans for a student-loan-style welfare reform – under which people who lose their jobs could receive higher benefits, then repay the extra when they return to work – are being examined by Labour as it seeks to counter claims that it lacks radical policy ideas.

The scheme, which aims to prevent people spiralling into debt, home repossession and relationship breakdown when they lose their jobs, is being considered by the party's policy review, chaired by MP Jon Cruddas.

Under the plan – called "national salary insurance" and developed by the IPPR thinktank – people with sufficient national insurance contributions would be entitled to receive up to 70% of their previous income, capped at £200 a week, for a period of up to six months, to help prevent them falling off a financial "cliff edge".

The idea is being looked at as part of Labour's bid to restore the "contributory principle" to the benefits system, so that those who have paid more in can expect higher benefits, bolstering incentives to work. While sources said arguments about "upfront costs" would have to be thrashed out and no decisions had been finalised, it is believed the costs would be limited because most people return to work within six months and, under the system, would start paying money back. Labour is, in any case, committed to finding a job for anyone who has been out of work for two years, or one year for those under 25, and will impose benefit sanctions on those who refuse to take up offers.

The party – which has faced criticism for focusing too much on attacking the coalition rather than putting forward policy ideas – will be unsettled by a new Opinium/Observer poll, showing its support has fallen in a fortnight to 35%, one of its lowest levels since Ed Miliband became leader. Under his leadership the lowest poll figure for Labour has been 34%. The UK Polling Report website shows ratings have fallen to 35% on nine occasions since September 2010 and to 34% on just four occasions. The Tories are up one percentage point to 29%, while Ukip maintains its recent surge and is up by the same amount to 17%. The Lib Dems are unchanged on 8%.

Also worrying for Labour is that the Tories have increased their lead on the economy since last September. Then 26% of people said they trusted David Cameron and George Osborne most on the economy, compared with 24% who preferred Ed Miliband and Ed Balls as stewards of the nation's finances.

Now 29% says they trust Cameron and Osborne more, with only 22% preferring Miliband and Balls.

The results, less than two weeks before the 2 May local elections in 35 English councils, including all 27 non-metropolitan county councils and eight unitary authorities, are a further substantial boost to Ukip, which is fielding a record number of more than 1,700 candidates.

Last night party leader Nigel Farage told the Observer that, following a nationwide tour, he was confident of more than tripling his party's percentage of the vote compared with the last elections in the same councils.

In a warning to the Tories, who are likely to suffer most if Ukip polls strongly, Farage said: "Ukip support is strong wherever there's a windfarm development planned, wherever the HS2 high-speed line is expected to drive through the countryside, or wherever Grant Shapps wants to build on the green belt. Which means everywhere in rural England.

"I would expect that Ukip's vote share will be above 14% across the country and in some places significantly higher."