How to avoid the benefits trap: As we await Labour's new welfare plans, Simon Crine offers some advice from the States

ON MONDAY Labour's Social Justice Commission will issue its long-deliberated report. It is likely to be the most ambitious attempt to rethink the welfare state since Lord Beveridge drew up his blueprint 50 years ago.

Successive governments, not least the present one, have made many changes since - often with unintended consequences - and the system looks very different from the one Beveridge designed. In any case, his social world has gone: most families need two earners, and unemployment has at times been back to the levels that scarred the inter-war years.

Addressing the launch conference will be the Opposition leader, Tony Blair.

He is likely to give great weight to the report. It is therefore important that Sir Gordon Borrie's commission avoids the kind of welfare mess that President Bill Clinton got into by promising far more than he could ever deliver on means-tested benefits and omitting to sing the praises of the bit that works: universal pensions and health care for the elderly. Promising to 'end welfare as we know it' may have been a clever campaign tactic for Clinton but it has caused him all sorts of problems in power. Liberals thought they were getting higher cash benefits, while conservatives hoped for the opposite.

Clinton's key proposal, yet to become a Bill, is a two-year limit on welfare benefits for single-parent families followed by a compulsory job, preferably in the private sector but failing that in community service. When he announced his plan in May he said that these jobs should be remunerated at or above the minimum wage; but the Republicans soon came up with a tougher and cheaper alternative: welfare recipients should work for their benefits.

Further, where Clinton talked about an expansion in education, training and job-search programmes for people on benefits, and better childcare provision for the working and non-working poor alike, the Republicans came up with an alternative plan to cut off all benefits to parents under 18, to impose a 'family cap' on benefits for children born while their parents are on welfare and to withdraw benefits from immigrant families.

Clinton's welfare package has been grounded largely by tactical blunders.

But it was also aiming at the wrong targets. Neither in the US nor in Britain are the main problems benefit dependency, aversion to work, or even family breakdown. Rather they are unemployment, low pay, poverty and a benefit system which makes it difficult to reconcile paid work and caring for children and other dependents.

The irony is that there are two great American welfare success about which Clinton has had little to say. Social Security - the universal pension system - and Medicare, the equivalent of the NHS for the retired, not only benefit everyone who pays in via Social Security Tax (the US version of National Insurance), but overwhelmingly benefit people on below-average incomes. Two thirds of the Social Security budget goes to people earning under the median income of dollars 31,000 ( pounds 19,000), while only 2 per cent goes to people earning more than dollars 100,000.

The success of Social Security in combating poverty among the elderly - fewer than one in 12 senior citizens are below the official poverty line - contrasts with the failure of the means-tested benefit for poor single- parent families to lift more than one in 20 over the poverty line.

If the Commission on Social Justice is to point Labour in the right direction, it must start by saying that good welfare reform does not come cheap. Both old-left solutions such as higher cash benefits and better childcare, and new-left education and training programmes to get people back into work, are expensive. Originally Clinton's advisers had envisaged a dollars 25bn ( pounds 16bn) programme to give everyone on means-tested benefits a second chance - training, a paid job guarantee after two years, childcare - but this was whittled down to a dollars 9bn programme for single parents under 24 by the time he launched the package. The only way to cut the cost of welfare is to cut welfare itself.

Second, the commission must not throw the universalist baby out with the Beveridge bathwater. Means- tested benefits are not just unpopular and stigmatising, they are ineffective at targeting need. Only last week it was revealed that the Government's latest means-tested benefit, the Disability Working Allowance - designed to top up the wages of low-paid workers with disabilities - had reached only 4,000 of the 50,000 people it was designed to help.

THE SOLUTION to the increasing cost and decreasing value of our state pension system is not to means-test it, or even to privatise the system, but to find a way of guaranteeing a decent minimum pension for everyone - whether from public or private sources.

But universalism need not mean higher cash benefits all round. It should remove the obstacles to independence by improving community services. The most obvious example is childcare. Arguably, the creation of a new entitlement to childcare would do more to enable people to stand on their own feet and alleviate poverty than any increase in cash benefits. An entitlement to childcare and the preservation of choice as to its delivery should figure at the top of the Social Justice Commission's priorities.

Third, the welfare system needs to be flexible. If more and more people neither want to work full-time because of their other family responsibilities, nor can earn enough from part-time work to support their families, we should make it possible for them to combine work and welfare.

That means freeing people on benefits to earn more from part-time work rather than digging ever deeper poverty traps or, worse, encouraging fraud.

Finally, Sir Gordon must remind us all that the aim of the welfare state is no so much a safety net for the unlucky few but the guarantee of real social security for the many. Fifty years after Beveridge, there must be more sophisticated ways of doing this. Means-testing is not one of them.

The writer is General Secretary of the Fabian Society, and was Harkness Fellow at the Center for Policy Alternatives, Washington DC, 1993-94. His 'Reforming Welfare: American Lessons' is available as a Fabian Society Pamphlet No 567.

(Photograph omitted)