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Letter: Blair and Lib Dems

Sir: Derek Cole's claim (letter, 31 December) that Keynes and Beveridge would have opposed the Government's welfare reforms is longer on speculation than on evidence.

Keynes's central insight was that economies were cyclically unstable. He believed the state should try to stabilise economic activity by means of fiscal policy - with the implication that public revenues and expenditure should balance over the course of the business cycle. In the sixth year of recovery, the Government is, if anything, not being tough enough on public spending to meet the criteria of Keynesian stabilisation policy.

The axiom of the Beveridge Report was that of social insurance, not redistribution: benefits would be funded by contributions and supplemented by a welfare "safety net" for those whose incomes fell below a certain level. There was no plan to establish a structural budget deficit generated by expenditure on an expanding system of welfare entitlements.

The principle of welfare reform is wholly in line with liberal thinking, and is supported by independent-minded figures of both main parties, such as Frank Field and Chris Patten, and of none, such as George Walden and Martin Bell. It is the curious and essentially reactionary alliance of the Liberal Democrats and the Labour rebels that has abandoned Keynes and Beveridge.