Leading Article: Labour seeks the high ground

For nearly two decades, innovative thought about the welfare state has been a preserve of right-wing think-tanks and the Conservative Party. They are responsible for the introduction of markets in state health care and education, contracted-out public services and increased private funding of pensions and student grants. Tight Tory control of benefits has held down the bill for the state pension, income support and child benefit.

Yet change has, in fact, been modest compared with what might have been.

There has been a revolution in the management of welfare services. But the state retains more or less the same financial duties to the individual as it had in 1979. The edifice designed by William Beveridge in 1944 remains largely intact and taxes are marginally higher than they were when Margaret Thatcher took office. Meanwhile, thinking on the centre and left of British politics has been conservative, focused on preserving the dominance of the public sector in the fields of social and health insurance.

The report of the Commission on Social Justice, published yesterday, is an attempt by modernisers within the Labour Party to break with rigid dogmas and claim the intellectual high ground on the welfare state. Like Beveridge, the commission started from the premise that jobs rather than social security benefits offer the best way to improve the lot of individuals.

Employment gives people income, security, status and the chance to prepare for old age.

However, the climate in which Sir Gordon Borrie's commission has laboured is quite different from that which prevailed in the Forties. In those days Keynesian economics had apparently found a solution to mass unemployment, allowing Beveridge to set up a social insurance system for all, with a safety net for the few. The commission has deliberated in an age in which no such panacea for joblessness is available. So the report has geared its policies to making people more employable. That means better education and training, job subsidies, help for lone parents, childcare support and efforts to eliminate some of the poverty traps created by low wages and the existing benefit system.

The report recognises that the public purse is not infinitely deep. So the commission favours taxing child benefit for those in the highest tax bracket and raising income tax for top earners. But the revenues would be paltry compared with some of the new responsibilities envisaged. Instead of opting to raise the state pension for all, the report argues that there should be a guaranteed state-provided minimum income for pensioners. This pledge is coupled with plans for a compulsory contributions-based second pension for all. The policy aims to minimise the numbers whose pensions will in future need topping up by the state. Likewise, a sensibly set minimum wage is intended to raise the incomes of the low-paid at a small cost to the state, with as few job losses as possible.

While the report shows that Labour is prepared to think anew, it does not present a wholly clear and hard-headed view of future welfare policy.

Although the report's proposals are uncosted, there is no doubt that taken as a package they would prove prohibitively expensive. The costs of extending unemployment benefit to part-timers and overhauling the pension system are two of the larger items. At the same time, major existing welfare claims on the state remain unconsidered. For example, the commission avoided examination of the state's role in funding the NHS, although it wisely pressed the case for a private insurance system to pay for long-term residential care.

The tone is also more prescriptive than might be judged attractive over the 15-year time horizon the commission set for itself. People would be obliged to save by contributing to a second pension, just as companies would have to pay for training.

However, old-style Labour statism is also challenged in the report, which sees private pensions, private insurance and privately funded higher education as options for saving the government money. Mr Blair will need further reserves of boldness to push his party towards a mix of public and private-sector solutions, appropriately and transparently regulated to achieve Labour's objectives of greater fairness and equality of opportunity.

As Labour strikes away at its shibboleths, however, it will not have gone unnoticed in sections of the Conservative Party that New Labour has no shame about wearing some Old Tory clothes. Yesterday's report is particularly close in spirit, for example, to Kenneth Clarke's Mais lecture in May. In that speech the Chancellor supported a strong welfare state that 'can complement, not hinder, more flexible markets by reducing the fear of change and opposition to it'.

It may be that left-wing Tories, the Liberal Democrats and Labour are heading towards agreement on a new type of welfare state, aimed in the Borrie Commission's words at giving the individual a hand-up rather than a hand-out. This contrasts with a harsher future envisaged by Michael Portillo and the Tory right, which involves shrinking the welfare state rather than merely finding a new role for it. The Jobseeker's Allowance, unveiled yesterday, seeks to tap into that part of the public mood which believes the ranks of the unemployed conceal significant numbers of people who choose not to work for a living. Planet Portillo's atmosphere instils discipline, where Borrie-Clarke emphasise opportunity and security.

These differences may, however, easily be exaggerated. Once in power, Labour will only be able to adopt many of the attractive policies suggested in Sir Gordon's report if it can persuade citizens to pay for them directly rather than through the mechanism of an enlarged state. Given the harsh realities of state finances, governments of every hue will find themselves reaching, however reluctantly, for the Portillo stick.