Prescott: now we must shake up the welfare state

John Prescott today calls for a shake-up of Labour's approach to the welfare state by targeting more social benefits on the poor and under-privileged.

Speaking exclusively to The Independent on Sunday in advance of a speech this week, the Deputy Prime Minister said the shift towards more targeting will be highly controversial but is essential to tackle pockets of poverty that still exist in Britain.

He said that some across-the-board increases of benefits from pensions to child support would continue, but extra cash and public services must be targeted at the worst off.

"It is a very important moment for New Labour. This is now its biggest challenge. It's gone through its Clause 4 argument. It's gone through the economic argument to public-private partnerships. We are now reshaping welfare to meet real needs," he said.

His remarks will raise fears about a return to means testing, which could leave the middle classes worse off. Mr Prescott denied that taxing child benefit is back on the agenda. However, targeting rules out demands by pensioners' leaders for the link between the state pension and earnings to be re-established.

The Deputy Prime Minister will signal in a speech to the Fabian Society this week that he is backing the shift towards more targeting by Gordon Brown, the Chancellor, through a battery of tax credits for pensioners, single mothers, children, and working families.

Some Labour traditionalists who oppose means testing are likely to be concerned about the shift towards more targeting. Cabinet colleagues will also see it as a fresh attempt by Mr Brown to reassert his agenda for tax credits over their demands for higher spending on health, education, policing, and transport.

"We are saying that everyone will get something but within that we have an obligation to find more," Mr Prescott said.

"Instead of tax and spend, it's come from a redistribution of resources. This is about the order of priorities. It's consistent with a democratic socialist approach but difficult for Labour because it has a kind of ideological aspect."

Mr Brown was to have delivered his own speech at the conference but will not be there because of the death of his daughter.

Mr Prescott said that pouring all available extra resources into universal up-rating of benefits such as pensions would be too expensive and do nothing to end the disparities between the well-off and the poor.

He will say: "It's too often the case that services are worst where they are needed most." And he will warn: "We cannot afford to get it wrong."

Underlining the importance of targeting public services, he will cite Preston Road, in his Hull constituency, one of 39 areas chosen for special treatment, where 87 per cent live in council houses, compared with a national average of 23 per cent. Only 53 per cent of the area can read, compared with 82 per cent nationally; 57 per cent can write, compared with 83 per cent for England; and only 15 per cent left school with five GCSEs compared with 48 per cent for England. There are also high crime and high teenage pregnancy rates, although progress is being made in reducing them.