Portillo's case for benefit cuts 'misleading the public': Welfare state 'should act as savings bank for all as well as safety net', report says

MICHAEL PORTILLO, Chief Secretary to the Treasury, and other key ministers involved in the Government's public spending review are misleading the public when trying to justify cuts in welfare spending, according to research to be published next week.

The report follows a four-year study by academics at the London School of Economics into who receives what from the education system, the health service, social security and personal social services and reveals a different picture from that given by the Government.

In the storm over leaks of apparent plans to end the universal payment of benefits such as child benefit and state pensions, and to end the system of free prescriptions for all pensioners, regardless of income, the Government has presented the need to cut public spending as a way of targeting money to the people who need it most.

Ministers and advisers have been arguing that under the existing system of universal benefits, better off people receive money they do not need, and that this money should be redirected to those on lower incomes.

The report, Investigating Welfare, suggests that the system is essentially a 'savings bank' into which most people contribute throughout their lives through tax and national insurance, and withdraw money when they need it, for example through pensions and free prescriptions.

So if the Government stops paying benefits to certain groups, it will be depriving them of money they have contributed and are entitled to. If the public come to understand this, the outcry could be as great as that caused by the poll tax, authors of the report predict.

Professor Julian Le Grand, co-director of the Welfare State Programme, said: 'The welfare state has two roles: one to redirect income from rich to poor and the other to act as a kind of savings bank for everybody.

'The targeting debate seems to assume it's only about the first and hence if you take money away from the rich and move it back to the rich, it looks daft. That's the kind of political argument being used. But that ignores the fact that about two thirds of welfare spending is simply a system by which people pay money in for a long time in return for payments out when they are sick or old or unemployed.

'If you begin targeting now, you will end up with a situation in which many people will have paid into the welfare state but be unable to claim their due benefits. This will be unfair and politically unwise. The whole discussion so far, or the way it seems to be presented, ignores the very important savings bank role of the welfare state,' the professor said.

The apparent misrepresentation of the spending review follows accusations yesterday that Peter Lilley, Secretary of State for Social Security, misled the House of Commons in a debate about the future of sub-post offices.

Mr Lilley said they received a grant regardless of the number of benefit transactions they did, suggesting their viability would not be jeopardised by a government drive to encourage more pensioners to have pensions paid by automated credit transfer direct to their bank or building society.

However, the National Federation of Sub Post Masters later pointed out that only a small proportion of sub-post offices received such fixed sums.