Schools and hospitals could cash in on benefit cuts

Cuts in Britain's benefit bill will be diverted into hospitals and schools, the minister in charge of reforming the system said last night. Frank Field's keynote speech pointed to radical changes in a delayed Green Paper on the benefit system, writes Fran Abrams.

Ministers yesterday again refused to say whether they were considering compelling lone mothers to take jobs under the Welfare to Work scheme.

Harriet Harman, the Secretary of State for Social Security, faced new criticism from Labour backbenchers in the Commons just hours before her colleague Frank Field set out the principles for the reforms.

Asked whether single mothers would be forced into jobs, she replied: "Compulsion is not the issue." She also failed to rule out means testing or taxing disability benefits, but did say that "no one is even talking about taking away benefits off those who need them - disabled or pensioners. Of course we mustn't do that". The Government would honour its pledge to maintain the old-age pension, she said.

However, Mr Field, minister for welfare reform, suggested that money could be diverted from benefits into health and education. In a lecture organised by Prospect magazine, he added that the benefits bill - currently pounds 100bn per year and rising fast - could be cut if more people went out to work.

He also said that the current system was "leaking billions of pounds to the wrong people every year" through fraud, and that this could not go on. "If savings are made from the social security budget - and by moving people into work we will reduce the financial load - we will be releasing resources for education and health," he said.

But while the aim was to divert resources to other areas, Britain should not aim for a "bargain-basement system" like the one in the United States, where welfare had become a dirty word because it was seen as only being for the poor.

He also suggested that more benefits could be delivered through public- private partnerships or even by voluntary organisations. Friendly societies, trades unions and charities could administer benefits, bringing them closer to those who received them, he said.

He repeated that there would be "hard choices" to be made and added: "I am under no illusions that this is a long game, or that we need all the help we can get."

A spokesman for the Department of Social Security confirmed last night that Mr Field's lecture on the principles that should govern welfare reform gave pointers to a forthcoming Green Paper on the subject. It had been due by the end of the year, but is now expected some time in January or February.

There was also confirmation last night that social security ministers and environment ministers were working on a scheme that could dramatically reduce the amount spent each year on housing benefits. Ms Harman told Dale Campbell-Savours, Labour MP for Worthington and a strong advocate of reforms to pin levels of rent paid to landlords, housing associations and local authorities, that housing benefits were "very much part of the comprehensive spending review".