Political Commentary: Tackling the means-test taboo

IT IS nearly five years since Nigel Lawson's famous spat with Sunday newspaper political correspondents. The issue was a 'lobby briefing' where Mr Lawson thought aloud that the majority of old age pensioners were increasingly well off and that there was a case for 'targeting' future increases in some benefit payments to the 'tiny' minority in genuine poverty.

The prominent stories that resulted from the briefing plunged Mr Lawson into a ferocious political row: Neil Kinnock became the first Opposition leader for 30 years to put down a Private Notice Question for a minister other than the Prime Minister. Mr Lawson, a former Sunday newspaperman himself, launched a vituperative attack on journalists, denouncing their reports as 'inaccurate, half-baked and irresponsible' and much beside. A tape recorder operated during the briefing by his new press officer, John Gieve, which might have showed who was right, failed to work. And the Government rushed into Parliament a pounds 200m measure for helping the poorest pensioners, which Mr Lawson insisted was what he had been talking about in the first place.

There was some wrong on both sides: Mr Lawson did not talk of 'means testing' benefits as some papers reported; nor were all the reports 'half-baked and irresponsible'. But the episode illustrates how times have changed. By even questioning whether benefits should increase for every pensioner at the same rate, Mr Lawson was tackling a taboo subject.

By contrast, at the conference last weekend of Young Conservatives at Southend, Peter Lilley, the Secretary of State for Social Security, left his audience in little doubt that some means testing of current universal benefits was a long-term possibility; two days later Michael Portillo, the Treasury Chief Secretary, and the coming man on the Tory right wing, cheerfully told the Commons that nothing was barred in his planned review of public spending; and that the Government would consider whether there were parts of the welfare state from which it might 'withdraw altogether'.

One reason for the change in climate is the behaviour of the Labour Party. In public, the Lawson comments provoked a huge outcry from the Opposition. In private, it was a little different. A few months after the episode, an important figure, then and now, in the Labour Party remarked ruefully at a private dinner with a group of journalists that the Chancellor's imprudent remarks had set back a cause which any government would have to tackle in the long term: the huge cost to the taxpayer of universal benefits, many of them paid to recipients who did not need the money. If his remarks had been reported, as the shadow minister knew they would not be, he would probably have had to resign. Yet three years later, John Smith could safely announce that the party's new Commission on Social Justice would consider, among other questions, the 'balance' between universal and non-universal benefits. In other words, more means testing was a possible item on Labour's agenda, too.

There will be a stark reminder this week of one reason why the issue has come to a head now, when unemployment passes the three million mark. The moment has been long anticipated; but that will not make it less traumatic. It will be a grim message about the price the country has paid for the comfortingly low inflation figure of 1.7 per cent announced on Friday. On the one hand, unemployment, because of the huge increase in social security benefit payments which it generates, is a key contributor to the enormous Public Sector Borrowing Requirement. At the same time it inhibits the use of increased taxation to deal with the debt. The Chancellor is under strong pressure to increase taxes in the March Budget, including extending the VAT base. He may well do so, though the message he is getting from his pre-Budget meetings with MPs is: 'Be kind in March, hurt us in December.' A swingeing increase in taxation in March - the very month that unemployment threatens to pass its previous record level of 3.1 million, woefully underlining the need for growth rather than restraints on spending - is politically unpalatable. As a result, the alternative method of dealing with a deficit has moved up the agenda, namely spending cuts, or more accurately, holding out the promise to the markets of cuts in spending in the long term.

Mr Portillo and Mr Lilley will have seen the neat congruence between their macro-economic preferences and their neo- Thatcherite radicalism. Those who are most uninhibited in their opposition to tax and interest rate increases are also those most in favour of a radical revision of the welfare state, including more means testing of benefits. What better way of taking advantage of economic adversity than by using the deficit as a reason to roll back further the frontiers of the state?

It may not be quite as easy as that. Unemployment itself inhibits change. For example, the Government, required by Europe to equalise the state pension age, would like to raise women's retirement to 65 rather than reduce men's to 60, hoping for huge savings in the process. That is a lot easier to argue for when unemployment is low.

On the two biggest benefits, child benefit and old age pensions, the Government is bound by manifesto commitments. It is left with two possibilities: one is to chip away at universal benefits not covered by manifesto pledges; the other is to include revising child benefit and pensions policy in the next manifesto. Mr Lilley has already tried the first. It is still not quite clear what happened in the closing days of last autumn's spending round; but it looks very much as if Mr Lilley tried to introduce means testing or taxation of invalidity benefit but ran up against the opposition of the Prime Minister.

Indeed, Mr Major has strong universalist tendencies, which is one reason why the freeze on child benefit was lifted after Mrs Thatcher's fall, to the well known irritation of the Cabinet right.

That is not to say that Mr Major may not change his mind before the next election; only that he will need some persuading. Nor will it be that easy. As one senior Tory put it, 'Cutting the old age pension - not exactly an election winner is it?', particularly since the Tories would be faced with the same difficulty that cast a shadow over Labour's pre-election tax plans: that in order to raise serious money the middle- income floating voters are likely to be adversely affected. It may be that a measure of cross-party support is essential to reform. Which is why both the main parties are warily watching each other before committing themselves to change.

So far the most creative contribution to the debate from the right has come from David Wil letts, the MP for Havant and one of the brightest hopes in the 1992 intake. In a Social Market Foundation pamphlet, The Age of Entitlement, Mr Willetts makes space for Mr Lilley by suggesting an eventual state pension age for men and women of 67, arguing persuasively that as people live longer, it is a waste of experience and skills to part with the work force too early. But he also argues against tampering with the state pension and for concentrating increases above inflation on pensioners over 80, who, he argues, tend to be poorest in any case.

This is not so much means testing as targeting. Which, come to think of it, is what Mr Lawson caused all that fuss by suggesting four and a half years ago.