Sharp divide as fair wind blows for radical change

Tony Blair's commitment to a "stakeholder's economy" in contrast to the Prime Minister's vision of Britain as the "enterprise centre of Europe" implies Labour endorsing sweeping changes to the welfare state.

It gives the fairest wind yet to the radical ideas for transforming welfare advocated by Frank Field, the Labour MP who is chairman of the cross-party Commons Social Security Committee.

And it makes likely an increasingly sharp division between the parties over the degree to which individuals and companies will be compelled to make provision for future pension and other welfare costs.

Some elements of the divide are already present. The Conservatives are committed to a low-tax, deregulated economy with public spending below 40 per cent of GDP. With that goes increased reliance on means-tested benefits for the unemployed and private provision above the basic state pension. Labour, by contrast, supports the EU Social Chapter, a minimum wage, a training levy on employers, new rights for the young to learn while on benefit, and, possibly, a guaranteed minimum pension.

But it is with Field's ideas - not yet adopted by Labour - that the division could become stark. Field's view is the conventional one that the electorate will no longer vote for high levels of taxation to fund welfare, and that a benefit system which encourages high levels of unemployment must be reformed. His proposals include setting up twin corporations, one to run and oversee second pensions - which might be provided by friendly societies, trade unions and the private sector as well as by the corporation itself - and the other to rebuild social insurance against unemployment, and for long-term care. A key aim of the second corporation would be to reduce reliance on means-tested benefits.

Both would involve compulsory contributions from employers and employees, independent of the Government, whose role would be limited to a veto on contribution rates - and paying in contributions for the unemployed and perhaps the very low-paid. Individuals would own their own accounts, becoming individual stakeholders.

The redistribution in the system would be overt - from the payments the Government made for those who could not contribute themselves - rather than hidden in the tax and national insurance contributions. This might cut taxes. But it would involve compulsory, and possibly large, contributions to the new funds which employers and employees might see as a tax by another name.

In a stakeholder's economy, individuals and companies would be compelled to make greater collective provision, while the Conservative routeleaves companies with fewer duties and marries increasing reliance on means- tested benefits with tax incentives.

Field's package includes a transformation of social security offices so that they become job-search and training agencies, not merely payers of benefit, linked to a draconian anti-fraud regime, but while Labour's ideas imply a much bigger welfare-to-work programme, the difference at present is in part one of degree.

The Government already has a dozen small-scale schemes and pilot programmes which subsidise employees into work - on top of the rapidly growing Family Credit which benefits 600,000 families at a cost of more than pounds 1.5bn. Labour's present commitment to expand on that is limited to its one-off windfall tax on utilities - a measure which it is not clear would have a lasting impact on the benefit bill.

Andrew Marr Column, page 15