Podium; Means-testing will not benefit society

From a speech given to the Social Market Foundation by the former minister for welfare reform

THIS FIRST lecture since resigning from the Government gives me the opportunity to reflect on what I see as the great divide in the debate - and in action, too - on the reform of the British Welfare State.

The great driving force in practically all of us is self-interest. Self- interest has remained the golden thread linking together most of all human advance since time began. Self-interest should never be exclusively viewed in terms of making money - although most of us in employment should gratefully doff our hats to this simple fact. No, self-interest is apparent in our human relationships, in how we help maintain society, and how we contribute generally to our well-being and that of others.

The role of politicians is not to deny self-interest. To do so is too dangerous for words. It is, rather, to capitalise on this great driving force in each of us, to appreciate that it has, and always will be the greatest (but not the only) engine force for social advance, and that the primary responsibility of the politician is to lay options before the electorate so that self-interest can run its natural course in a manner which also advances the common good.

Holding such views about human nature and the mechanics of human advance begins to close down options for welfare strategies. If welfare impacts on behaviour as I believe it does and if our human frame is feeble and open to corruption (which I believe it is) then it is only safe to consider those welfare strategies which take into account these most fundamental of premises and, in doing so, operate in a manner which helps direct self- interest to promote society's more general well-being.

Here is the big divide. For all its attractions, welfare selectivity on the basis of income and capital spells trouble - big trouble. While it is true that no welfare system can do without some forms of means-testing, too heavy a reliance on means-testing courts disaster.

The reason for this are obvious. Means tests ensure that benefit is lost as income rises. It acts thereby as a great disincentive to work. Similarly it penalises savings. Means-tested benefits are lost if savings are above a minimum level. And honesty about if and how long you work, and about the existence of savings, reduces your income. Hence the penalty which is put on honesty which is likely to weaken any urge to tell the truth. Yet work, savings and honesty are the cornerstones around which a thriving, prosperous and decent society are built.

Politicians are rarely offered an empty canvass on which to make their marks. No politician is offered that in today's welfare review roadshow. Trade-offs have to be made.

But the working family tax credit will amount to a major extension in means-testing to the working poor. It entails huge dangers.

It offers huge bonuses for dishonesty.

It strengthens the employers hold over work people - "these are the conditions, cheat, and both of us will be better off'.

It thereby pulls employees into a spider's web of dishonesty and corruption.

It rewards employers paying low wages.

It takes pressure off improving productivity and thereby the scope for increasing real wages.

The other immediate issue is the growing reliance on means-tested supplements for the elderly. The campaign to persuade the million pensioners to claim income support to which they are entitled is admirable. There is no other practical way of ensuring an immediate and often substantial increase for the poorest pensioner. Likewise, the recent announcements of a pension guarantee - an enhanced income support rate according to age - for pensioners is welcome for two reasons.

It offers help to the poorest pensioners. And equally important the Government, by implementing the pension guarantee, closes the debate on extending compulsory pension contributions for those still in work. Failure to follow this initiative with an extension of compulsion will play havoc with the economy and wider society.

If this guarantee is offered without extending compulsory pension savings for those now in work, then the most powerful and disturbing of signals will be sent out to today's workforce. It will be, "don't worry, don't bother saving, spend all you can today for tomorrow's taxpayer will look after you through the new guaranteed pension".

The alternative to this means-tested approach needs to be spelt out and support from the public gained for such an approach. That is the primary reason I have returned to the backbenches, I believe I will now have greater opportunity and more influence from that position.