Some tough things to digest

Peter Lilley has shaken up social security, and he's not done yet. He talks to Nicholas Timmins

Peter Lilley's appointment as Secretary of State for Social Security in 1992 was the big surprise of John Major's new Cabinet. There were two instant and not necessarily contradictory prognoses. The first was that his task was to grind the faces of the poor in the cause of cutting the Government's projected pounds 50bn spending deficit. The second was that the Thatcherite right-winger had been put there to blow up in the job like John Moore, his only recent predecessor from the party's right. Three years on, he is still there and has been been one of few in the current crop of Cabinet ministers to enhance his reputation.

One of his earliest public appearances was to the Tory party conference of 1992. He confirmed his critics' worst fears - producing the first of the pieces of offensively right-wing doggerel that have become his party- piece trademark. He had, he claimed, "a little list" of benefit offenders, of "young ladies who get pregnant to jump the housing list", and of "sponging socialists" who "never would be missed".

Buried in the speech, however, was the serious and coldly methodical side of Peter Lilley - six principles to guide future policy, among them focusing benefits on the most needy, restoring work incentives, encouraging personal responsiblity, simplifying the system.

What has followed is the biggest reshaping of social security in over a decade. He set out the case that the existing rate of growth in social security could not be afforded. By his own account he will have lopped pounds 4bn a year off spending by the end of the century. Much more will have gone once the impact of long-term decisions are included - pounds 5bn a year next century from raising women's pension age to 65; pounds 12.5bn a year from a further halving of the out-turn cost of Serps. He has managed this without so far reaching the head of anyone's list of the Cabinet minister most likely to be sacked.

For the Tory right, he has done nothing like enough, a point Lilley acknowledges. Cuts may have made the headlines, but demography, unemployment, inflation and some government policies have ensured that a bill which was pounds 80bn in 1992 is more than pounds 90bn now.

"People do say to me," he said in an interview with the Independent last week, "come on, Lilley, you're spending pounds 80bn or more, you must be able to lop pounds 5bn off that almost overnight.' I say to them, `pounds 5bn is one million people losing pounds 5,000 a year, or a larger number losing smaller sums or fewer losing even more.'"

Instead his policy has been, in the main, to cut the numbers entitled to benefit rather than cut the value of benefits. By and large, he says, "our benefits are not hugely generous. They don't enable people to live the life of Riley. So it's better to make sure they are only going to people who need them." There were only two ways to do that. "Restrict the numbers entitled, or remove the need in the first place - either by self-provision or by creating jobs and incentives to take them."

He has done both. The Jobseeker's Allowance will remove 100,000 people from unemployment benefit. Some 220,000 claimants will lose entitlement to invalidity benefit. And the changes due to mortgage interest payments will from October force around 100,000 people a year to take out private cover for unemployment for the first nine months of their new mortgages.

Self-provision has included that last measure and the pension changes, but also a string of small-scale incentives to help people back to work. A childcare allowance for lone parents in family credit has been introduced, along with the planned back-to-work bonus, rules that make it easier for claimants' spouses to do a little work on benefit, and an in-work benefit on the lines of Family Credit, to top up low wages of the childless.

This is to be a small-scale pilot - 20,000 people a year over three years starting in 1996. It carries risks - that employers may cut wages to take advantage of the state top-up, for example. If adopted nationally it could see many more people dependent on means-tested benefits in work rather than out.

All this adds up to evolutionary rather than revolutionary change, but change that nonetheless will progressively leave social security looking very different - a system that will be both more reliant on means tests but with more private provision. The right would still like to see much more of the latter. But it is clear that, for the moment at least, there are limits to that.

One senses Lilley would like to find a way of privatising the basic state pension, the biggest single element of the budget. But "the Chancellor has made it clear we are not intending to do that," he says. He is quick to add the reason. "If you let people take their contributions and put them in private schemes, you have to find pounds 25bn from somewhere else to pay for existing pensions. The fiscal black hole is the reason it is not on." Equally Lilley can see no easy way of privatising unemployment benefit - another target for right-wing reformers. Given this, and that he is bound by a manifesto commitment not to tamper seriously with child benefit ahead of the election, does that mean big changes for this Parliament are over? "There's certainly a process of digestion to go on," he says, "administratively even more than politically."

The history of the Child Support Agency, the new incapacity benefit and now the Jobseeker's Allowance, whose full operation has had to be put back six months, all show, says Lilley, what a massive operation is involved in changing social security.

This does not mean in his view that there isn't much more to be done, although Lilley keeps his counsel about how he would like to take further his twin aims of more self-provision and better targeting. Dealing with social security is a bit like the Forth Bridge, he says. "I suspect I am only halfway across. But if I do ever get to the other side, I suspect whoever comes after me will have to start at the beginning and repaint all over again."

And politically there is a further problem. The full effects of Lilley's re-direction of social security have yet to be felt. Lenders continue to assault his plans over mortgage interest payments which will hit middle- class borrowers, not just the less well off. Lilley has done his best with both careful briefings and questionable jokes about those denied benefit "jumping into wheelchairs", to prepare his backbenchers for the protests to come as the incapacity changes start to bite. And the tougher approach to the unemployed set out in the Jobseeker's Bill will be felt in the months coming up to the general election if John Major's government manages its full term. The backlash may still be to come.

None the less, it is a measure of the changed times and of his success that it is almost inconceivable that Lilley's successor will not be from his party's right; and as inconceivable if Labour wins the next election that Tony Blair will appoint a big spender to the job.