You're on your own, kid

We can't rely on the state or on a job, but there are ways to combat insecurity

Even if it would like to, whichever government takes us into the new millennium is going to be looking after us less.

The government's finances are in such a mess that it has no choice but to retreat. It already owes - on our behalf - more than pounds 400bn (or pounds 7,211 for every UK citizen) and although the economy continues to pick up steam, that debt is rising rapidly. If the government was a public company, shareholders would be in revolt and the bankers would be preparing to move in. Worse is to come. In just over 30 years the number of Britons aged 65 or older will have increased by more than 50 per cent to almost 15 million, while the overall population will remain barely changed at 60 million.

Any expectations that the state will be able to continue its current levels of support for the old and infirm are unrealistic.

When 30- and 40-year-olds retire, the state pension will be more or less worthless. If we have to use nursing home services then we, not the taxpayer, will foot the bill.

Adding to the gloom will be changing patterns of employment. Some politicians may like to boast that Britain's flexible labour market attracts high levels of foreign investment, but the downside is that employers are increasingly using contract, part-time and outsourced labour. Few of us now feel secure in our jobs and, over the next three years, one in 10 of Britain's 27 million workers will be handed a P45 at least once.

However, rather than resign yourself to an impoverished future, you could look to cash in on these trends by investing in the companies that will benefit from the shrinking state.

For instance, it is clear that Britons must save more and make greater provision for their old age. But at present, 75 per cent of pensioners earn less than pounds 8 a week from sources other than the state. Meanwhile, the number of Britons who save tax-efficiently through personal equity plans is only 2 million or so, and that number must rise.

This will be good news for those investment companies that have already established a good brand name and an effective distribution network in retail financial services. It should therefore be welcome news for shareholders in Sun Life & Provincial, which among big insurance companies is the most focused on the personal pensions market. The trend should also boost returns for investors in companies such as M&G and Perpetual, which have established leading positions in the PEP and unit trust markets.

The retreat of the state will occur on many fronts, not just in the trimming of welfare support. One "saving" of recent years has been the deferral of capital expenditure on Britain's transport infrastructure, but with one in 10 miles of main roads now needing repairs, that cannot go on forever. Consequently, large capital and maintenance projects will increasingly be carried out with private-sector money. In return, large contractors or facilities management companies, such as Tarmac or Amey, will either be paid an annual fee to care for roads or they will be allowed to charge tolls. The process has started already, with Amey picking up the rights to maintain all the main roads in five of the Home Counties.

The construction of privately funded roads and bridges will not only benefit large contractors but smaller companies such as Peek, which manufactures electronic toll-payment systems.

The government will also be contracting out the right to deliver a range of other services. The new written driving test is already handled privately and even the cutting of the lawns outside Buckingham Palace has been contracted out. In future, facilities management companies such as Capita and Serco, which have already grown rich taking on functions previously handled by the government, stand to be well placed to grow their businesses further.

With most workers steeling themselves for the inevitability of spending time between full-time jobs and short-term contract assignments, the long- term investor might buy shares in Corporate Services Group or Premiere Group, which make increasing amounts of money from providing temporary labour.

Direct investment in individual shares always carries risks but it has been shown repeatedly that the long-term holder of shares in companies operating in growth markets has always done better than investors in non-stock market investments. The knack is in spotting the growth sectors.

q This article was drawn from 'Investing for your children and grandchildren', by Tom Winnifrith, which was published last week by Rushmere Wynne, priced pounds 8.99. It is in bookshops or there is a credit card hotline, 01525 850270.