The issue has been suddenly re-opened in the wake of last month's unexpectedly large fall in unemployment, amid continued wrangling over the compensation package for value-added tax on fuel.
The increasing possibility of a cut in benefit came after yet another embarrassing leak from the Department of Social Security put the Government on the defensive by confirming that officials have also been studying ways of inducing the better-off to opt out of the state pension and unemployment benefit schemes.
Plans to halve the time that the jobless are eligible for benefit were considered in detail before Norman Lamont's last Budget but shelved, partly because they would alienate unemployed middle class electors likely to vote Conservative.
The Treasury had been discussing plans to replace unemployment benefit with a new 'job seekers' benefit' which would emphasise its purpose as a short-term payment. Two-thirds of unemployed people are estimated to leave the register before six months.
Unemployment benefit costs about pounds 1.8bn a year and is worth pounds 44.65 for a single person. When the eligibility period runs out, claimants are eligible for income support, which is means tested.
Another factor behind the moves to halve the period of benefit is believed to be a clear warning from Kenneth Clarke, the Chancellor, to Peter Lilley, Secretary of State for Social Security, that any extra money for a VAT compensation package will have to be found from Mr Lilley's budget.
It was stressed in Whitehall that no final decision has been taken. Mr Lilley will face parliamentary problems restricting eligibility for invalidity benefit and transferring a significant share of statutory sick pay to employers.
The studies in the leaked DSS document are part of the medium-term review being carried out by Michael Portillo, the Treasury Chief Secretary.
Donald Dewar, Labour social security spokesman, said that to strike at the principle of contributory benefits would be 'the fiscal equivalent of highway robbery'.
Virginia Bottomley, Secretary of State for Health, defended the right of government to 'examine the way we spend money' while insisting 'we also have a very firm duty to protect the welfare state, to provide for the weakest and the frailest'. But she acknowledged that 'year on year' the Government would examine the 'role that charges play in the NHS'.
Labour should examine releasing the large assets held by public schools and Oxbridge colleges by changing their charitable status, Frank Field, Labour chairman of the Social Services Committee, suggested in evidence to the Commission on Social Justice. The move could secure a considerable 'distribution of wealth'.
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