The cruellest test

Means testing digs deep into Labour's psyche and prompts feelings of revulsion that are hard to shrug off. It conjures up the horrors of the 1930s, when inspectors entered the homes of the poor and unemployed to make an inventory, ticking off the assumed value of the sideboard, the pots and pans, the settee, the kiddies' dresses and the overcoat of the man of the house. Based on this list of belongings, a deduction was made of the maximum unemployment relief to which the family was entitled. It was a humiliating experience and it seared the minds of generations of working class people.

Folk memories founded on those experiences infect the average middle- aged Labour politician. For many MPs, particularly those from the industrial areas where stories of dole and depression pass through three generations, it is an article of faith that means testing is wrong. "Never again," they say, and they mean in principle and in practice.

Tony Blair has never dreaded the knock of the tally man or hidden from the rent collector. Pov- erty is a concept, not an experience, which leaves him free of the emotional baggage that burdens many of his backbenchers. He argues that no part of the welfare state is "immune from any reform" while insisting he remains true to the guiding principles of Sir William Beveridge, the father of the welfare state.

But it was Beveridge, in the blueprint for the welfare state he circulated to the wartime Cabinet in late 1941, who proposed a national health service, universal children's allowances and unemployment benefit, all paid for out of social insurance. He had seen the harshness of the tests applied to the workless in the great depression and he insisted that "no means test of any kind can be applied to the benefits of the scheme". In his final report a year later, Beveridge was equally firm. He was determined to slay the five giants - want, disease, ignorance, squalor and idleness. He envisaged a minimum income available "as of right and without means test".

When he wrote his report, young men and women were fighting a war partly because they believed it would produce a decent society. Copies of the Beveridge Report were even air-dropped into Nazi-occupied Europe. At home, it was a best-seller. By 1945, expectations were great, and, in the next five years, they were substantially fulfiled by the Attlee government.

BUT none of the idealistic pioneers of the welfare state could have predicted its growth, or the ingenuity that would enable many thousands to work the system instead of working. By the early 1960s, the Conservatives had begun to question the role of the state in social services. When Douglas Houghton, the Labour social security secretary, left his Cabinet post in 1967, he wrote about the move in public opinion away from "universalism" towards "selectivity". His successor, Patrick Gordon-Walker, argued that the Labour government could make the social services selective "without any overt or invidious income test". Chancellor James Callaghan concurred: he said that there need be "no particular shame" about income testing - as means testing was now known.

Others went further. Brian Walden, a rising star on Labour backbenches, insisted: "Universalism in the social services must die." Indeed, the Labour Cabinet came within a few votes of rejecting universalism.

So there is nothing new in Labour's flirtation with means testing. Indeed, the notion of selectivity did emerge during Harold Wilson's first administration, in the field of rent and rates rebates and in local authority-financed family planning. In 1969, shortly before Labour lost power, Richard Crossman examined the rise in welfare state spending over the previous decade and found the extrapolated figures for the future "truly terrifying". But with the exception of the Tories' Family Income Supplement scheme introduced in 1975, both Conservative and Labour parties shied away from means testing until the 1990s. As Nick Timmins notes in his authoritative study of the welfare state, The Five Giants: "To believe in means tests was to suffer eternal damnation in Labour's ranks."

Yet damning evidence about the cracks in the system piled up. Every MP has his horror story of how it gets milked. Some parents who opt to have child benefit paid into their bank open a special account and use it to save for a new car, a foreign holiday, the deposit on a second home. A financial adviser to whom I spoke talks credibly of middle-class clients who send their child benefit cash off-shore.

This is not what Beveridge had in mind, surely. And it helps explain why Labour voices are now saying, in private, that some form of testing for some welfare benefits has to be introduced before the whole system collapses under the weight of its own contradictions. It cannot be proper for the well-off to receive benefits as of right, when one million families are living below the income support line, and four million children live in poverty.

One MP who has grasped the nettle is Gerry Bermingham QC. In a submission to the Prime Minister, he urges the Government to consider an individual "needs and income audit" before paying benefits. Bermingham says: "We should now be thinking not about means testing but perhaps testing the abilities of people to satisfy their own needs. What we should be doing with people with disabilities, for instance, is help them conquer their disability so they utilise their own potential. In a civilised society, that's the way to do it. You don't just chuck money at them."

Bermingham's proposed "needs and income audit" would look at the potential of individuals and how they could be assisted to realise it - through child care, for instance - as well as at annual income. He accepts that the initial assessment would be difficult but once the machinery of assessment is in place "it becomes a relatively easy task to keep it updated. It also enables you to counteract fraud and false claims that are the bane of the system."

Bermingham's constituency is St Helen's South, where the main employer, Pilkington's the glassmaker, pays good wages to its workforce; pounds 25,000 a year is not uncommon. The town also has serious unemployment, and the gulf between those in work and those on benefits is very wide. Yet the relatively well-off glassworker gets child benefit just like his out-of- work neighbour.

BERMINGHAM'S proposed reform has small support, but growing, though he has not been joined by Frank Field, the minister for welfare reform. Fieldhas been quiet about means testing but, if he remains loyal to the views expressed in his pamphlet, Making Welfare Work, published in 1995, he is against it. Field argued the case for phasing out all means-tested benefits in favour of a "stakeholder's insurance scheme", a fancy way of saying the individual should save up to pay for his own old age or indigence. Field accepts that means testing is the cheaper option. "But there is a price," he argues, "which becomes clearer as time marches on." Means testing encourages fraud. "That is bad enough. But most of the fraud committed constitutes a criminal offence. Welfare is therefore having the opposite effect than that for which it was originally devised. The welfare state was constructed as a means of extending full citizenship to the entire population, many of whom might otherwise remain outside civil society. Welfare fraud now acts as an expelling agent, encouraging numbers of people into criminal activity."

But Field's argument does not address the issue of middle-class manipulation of the system. Nobody says the solicitor and his teacher wife who bank their child benefit are engaged in fraud. They are getting universal benefits to which they are entitled. Blair's thinkers of the unthinkable are now asking whether they should be entitled at all.

New figures from the Department of Social Security show that child benefit is not the only candidate for means testing. Up to pounds 10bn of the money spent on the sick and the disabled is paid to middle-income or wealthier families. The DSS statistics, published in remarkably timely fashion last week, showed that pounds 3.5bn of benefit spending goes to the 25 per cent of households with the highest incomes in Britain. What this means is that a police officer, retiring in his early fifties on a substantial pension, can enjoy the full range of disability allowances while pulling pints behind the bar in the local (a true case) while the seriously disabled live only on their benefits.

There are substantial countervailing arguments. If taxpayers in the middle and higher income brackets feel excluded from the welfare state altogether, they have a massive disincentive to pay taxes at all, and many will go to great lengths to avoid paying. Clearly, the old-age pension, such as it is these days, needs to be ring-fenced from means testing or "needs and income audit", or whatever you call it, although what you do call it is psychologically important.

Just as the community charge was universally known as the poll tax, it is certain that "audits" will be known as means tests.

At the end of a week that brought the disabled to the gates of Downing Street to daub "Blair's Blood" on the pavement, there is plainly a need to spell out with the greatest clarity - and nerve - where the Brown-Blair revolution is going just as quickly as possible.