Commission on Social Justice: Strategy strikes theme of national renewal: Report initiated by Labour demands radical transformation of tax and spending system. Nicholas Timmins reports

The Commission on Social Justice yesterday called for a strategy of national renewal involving a revolution in education and a transformation of the benefits system to return Britain to full employment.

In what is billed as the biggest shake-up of the welfare state in 50 years, the commission produced a six-point plan to end long-term unemployment, which it describes as 'a plague which can and must be prevented'. Measures proposed include wage subsidies; national insurance holidays for those giving work to the long-term unemployed; a national minimum wage; a new unemployment benefit to encourge part-time working; a jobs, education and training scheme; and improved child care.

The commission says that mass education 'is still Britain's greatest failure'. It calls for universal pre- school education for three- and four-year-olds, a 'learning bank' into which individuals, employers and government would pay to allow life-long learning, and a new system of student loans, covering part of tuition costs as well as maintenance, which would be paid back through national insurance once graduates moved above average earnings.

For old age, it proposes a minimum pension guarantee, and says that second pensions should be made compulsory. That could be done either through an improved State Earnings Related Pension Scheme (Serps) or a range of occupational and private pensions, including possibly a state-run national savings pensions plan where the money would be invested - a funded rather than a pay-as- you-go-scheme. 'We must recognise that we are not, as a nation, investing enough in retirement and old age.'

Although the commission was set up by the Labour Party, its report tackles a string of Labour shibboleths. Its proposals include: Raising child benefit by up to pounds 5 a week by withdrawing the married couple's allowance, but then taxing it where either parent is a higher rate taxpayer.

A minimum wage, which it says is 'essential' to underpin the strategy of paying more benefits in work and to set a 'pay floor' at the bottom of the market. But it should be introduced 'with caution' it says, and points to around pounds 3.50 - rather than the pounds 4 backed by the big unions - as the level where it will not cost jobs. Young workers would get a 'trainee wage' of perhaps two-thirds of the minimum.

A guaranteed minimum pension, set higher than the basic state pension or income support, and raised in line with net average earnings. The integration of tax and benefits would avoid means-testing in the traditional way. However, the Government would have discretion over how fast the basic pension would rise - thus abandoning Labour's 1992 pledge to raise the basic pension in line with earnings.

The report accepts a big role for private and occupational pensions, and says tax rules should be changed to allow occupational and personal pension plans to offer insurance for long-term care, pending an inquiry into how care in old age should be financed.

It also accepts the necessity for student loans to boost numbers in higher education; says the private- rented sector should be encouraged; and says that industrial injury insurance, on which pounds 650m a year is paid out, should be provided by employers, not the state.

Sir Gordon Borrie, the commission's chairman, said it aimed at 'a new agenda' to replace the old slogans for left and right, stating that 'ours is not a tax-and-spend strategy, squeezing a bit more money from the existing tax system to squeeze a bit more money into the existing benefits system'.

The aim was to offer 'a hand-up, not a hand- out', changing the education system so 'people can learn more and earn more', and changing welfare and the labour market so people could take jobs and the Government save money.

None the less, while Sir Gordon ducked questions about rates of tax, the commission says a new top rate should be considered for very high earners, for example those on about pounds 85,000 or five times average earnings. 'It is clearly wrong that the richest people pay a lower share of their total income in direct and indirect taxes than the poorest,' the report says - proposing that people should have to pay a minimum percentage of their income in tax, so that the rich cannot use accountants to escape payment, and that a maximum percentage for income tax and national insurance should be set at 'no more than 50 per cent'.

Fifty years after the Beveridge report which launched the welfare state, it sees three choices: an investors' Britain, a de-regulators' Britain or a levellers' Britain.

The levellers are described as pessimists, concerned with the distribution of wealth to the neglect of its production. The de-regulators want an entrepreneurial culture, where the rich get richer and the poor get poorer and 'where the rewards for success are matched only by the risks of failure'. But the commission believes in the third option of an investors' Britain, 'combining the ethics of community with the dynamics of a market economy'. Investors, it argues, believe in security as the foundation for change, and that constant innovation and higher quality demands opportunities for every individual, not just for an elite. 'Social justice is not about how much we spend on other people; it is about how much we invest in ourselves,' it says.

It says the report was needed because 'for generations we have grown up to believe that our children would be better off than ourselves. But today . .

. that assumption has been shattered. Old evils of homelessness and pauperism have returned; new evils of insecurity have emerged'.

Today, the report says: one in five people is dependent on benefit; one in five men of working age is not in employment; one in three children lives in poverty; nearly two-thirds of people live in households where the income is less than the average; the gap between the highest and the lowest paid is greater than at any time since 1886; more than 1 million people are long-term unemployed; more than 1 million pensioners live on means-tested income support.

In addition, one in five 21-year- olds has problems with basic mathematics and one in seven with basic reading, while crime is now the United Kingdom's fourth largest industry and the number of drug addicts has risen 14-fold.

Beyond such data, there is 'a less definite disquiet and depression widespread in Britain', the commission believes.

'Many people who have the chance to work hard and to make themselves and their families better off are insecure about the future, scared about crime, worried about old age, and disillusioned with politics. Although nearly three times wealthier as a nation than we were in 1950, we are certainly not three times happier as a society.'

The world is very different from that of 50 years ago. 'Beveridge counted on more or less steady and full employment; today we face mass structural unemployment and under-employment. Beveridge assumed that a woman's place was in the home; today, women form nearly half the workforce. Fifty years ago, most elderly people were poor; today, there is a widening gulf between the significant number of elderly who are reasonably well off and those wholly dependent on state support.'

The welfare state, the report says, must be transformed 'from a safety net in times of trouble to a springboard for economic opportunity. Paid work for a fair wage is the most secure and sustainable way out of poverty'.

(Graphs omitted) Social Justice: strategies for national renewal; Institute of Public Policy Research; Vintage; pounds 6.99.

Leading article, page 17