Blair promises new welfare state: The Commission

Commission: main points 'Welfare-to-work' changes to end 'plague' of long-term jobless Child benefit to be taxed for top-rate taxpayers National minimum wage Minimum pension guarantee, but end of pledge to link basic pension with earnings A new top-rate tax Tony Blair yesterday formally dropped Labour's big welfare state spending commitments from the last election, opening the door to a new minimum pension guarantee and the possible taxation of child benefit for the better-off.

At the same time he did not rule out a system of student loans to boost the numbers in higher education, as he promised radical changes to create 'a second generation' welfare state.

On the day the Labour-appointed Social Justice Commission finally published its recommendations for the biggest shake-up in welfare for 50 years, including a weakening of Labour's commitment to the universal benefits of the basic state pension and child benefit, Mr Blair made clear that none of its recommendations was yet accepted.

But as he described the commission's report as 'a truly remarkable piece of work', he said its proposal for a new minimum pension would offer 'higher pensions at manageable cost' while merging public and private provision to attack pensioner poverty.

The guaranteed minimum pension would be set higher than the basic state pension or income support, and would rise in line with earnings. But within that, it would be up to the government whether the basic pension was increased by more than prices.

Equally, Mr Blair said that while the detail of the commission's proposals to tax child benefit for the better-off must be carefully considered, it was right to examine how the resources were used.

His stance formally ended Labour's pounds 2.5bn commitment at the last election to raise the basic state pension by pounds 5 and pounds 8 and link it to earnings, while leaving child benefit tax-free.

The Labour leader was more cautious over the commission's proposals for student loans, saying: 'We will sanction no change that breaches the most fundamental principle of all - that education should be based on ability to benefit and not ability to pay.' But his decision not to rule the change out contrasts with the removal of Jeff Rooker as the party's higher education spokesman last year when he insisted on canvassing the idea.

As Labour hoped the commission's wide-ranging report would break the logjam of party thinking on the welfare state, allowing issues such as student loans and child benefit to be discussed, Mr Blair stressed: 'If we can reform welfare properly, we will increase prosperity.'

The commission's report, with its call for a renewed commitment to full employment, was dismissed as an 'uncosted wish-list' by William Hague, Minister of State for Social Security, and attacked by Labour's left for reducing the commitment to a universal welfare state.