Leading Article: Welfare in a state

LABOUR HAS no doubt enjoyed the Government's embarrassments over the events that have led to Michael Mates's resignation. But its pleasure will be tempered by our front-page disclosures today that it, too, has associations with a dubious tycoon. And there lies an important caution. Labour cannot rely indefinitely on the Government's talent for providing a soap opera of scandals, blunders, and cover-ups.

What ministers do with the Welfare State is more important than what they do with second-hand Volvos and inscribed watches. Almost unnoticed last week, Peter Lilley, the Secretary of State for Social Security, gave an important lecture about the pounds 80bn budget for which he is responsible. That budget accounts for a third of government spending, against 10 per cent in the 1960s. It is likely to continue increasing by 3 per cent a year for the foreseeable future. Mr Lilley suggested that the country can no longer afford it.

Labour, too, must recognise the need for fundamental change. Anybody who visits a school, stays in hospital or travels by train will know that British public services are in desperate need of cash. Anybody who considers the income and outgoings of millions of old people, single-parent families and the unemployed will understand that state benefits fail to relieve poverty. Yet the public sector takes as large a share of national income as ever. The explanation for this apparent paradox is that public money is not being used effectively. That is hardly surprising when the largest single consumer of public money - the Beveridge Welfare State - has remained unchanged in its philosophy for half a century.

The issue is not whether the Welfare State should change but how. A system that pays state benefits of pounds 140.98 a week to the BBC social affairs editor (as she revealed last year) looks not just flawed but demented. Too much money goes to those who do not need it. Beveridge did not envisage the accumulation of wealth among large numbers of old people who own their homes and enjoy substantial savings and investments. He did not envisage large numbers of widows having their own careers. Fifty years on, that makes a nonsense of the pension system. For poorer retired people, the old age pension has long ceased to provide an adequate income. In 1979, it was worth 20 per cent of average earnings; now it provides only 15 per cent; in 30 years, on the present inflation-proofed basis, it will be worth less than 10 per cent. One-third of pensioners are eligible for income support - itself set at inadequate levels. Thus, in effect, state benefits for old people are already 'targeted', and still they fail to relieve poverty. Similar criticisms can be levelled at child benefit.

The right's solution, at its most extreme, is to privatise the Welfare State. People would be required by law to take out private insurance against unemployment, old age and sickness. American experience suggests that this would be wasteful because the private sector entails higher administrative costs as well as profit margins; inequitable because some people could afford better protection than others; undemocratic because private companies would not be accountable for decisions that would affect millions; and economically damaging because many employers would provide insurance for their workers, thus raising costs. But anybody who doubts that a privatised Welfare State would be on the agenda after another term of Tory government should, as well as reading Mr Lilley's speech, reflect on how improbable the privatisation of water or railways would have seemed 20 years ago. The left should therefore be pressing an alternative. Its solution should retain the principle that the state provides when people fall on hard times but it should define hard times more rigorously (they can no longer be equated automatically with widowhood or old age) and insist that the provision should be adequate. What it cannot do is to pretend that nothing needs to change. And it should not allow continuous displays of buffoonery on the Tory benches to distract its attention from the importance of the issues at stake.