Policy advisers to study social security cuts: Future of welfare state to head agenda private briefing

GOVERNMENT advisers are to be briefed by officials and economists on the future of the welfare state and options for cuts in the burgeoning social security budget at a private two-day meeting this week.

Top of the likely hit list in the short term - possibly this year - will be reducing the number of people entitled to housing benefit, taxing invalidity benefit and cutting the numbers claiming it, sources close to the advisers believe. Tax changes would need legislation and could be introduced in the autumn statement, but curbing the number of claimants could be achieved through regulations.

The social security advisory committee, which must be consulted on major changes to benefit regulations, will be addressed by senior officials from the Department of Social Security, including a policy adviser to Peter Lilley, the Secretary of State, and Tony Atkinson, a professor of economics at Cambridge University, who has written extensively on social welfare policy.

The briefing was requested by Sir Peter Barclay, the committee's chairman, after the Government's review of public spending, being conducted by Michael Portillo, Chief Secretary to the Treasury, was announced in February. It will take up a substantial part of the agenda for the committee's annual meeting, which takes place in Bath tomorrow and Wednesday.

The future of the benefit system for the next decade will be discussed by the committee, who will look at what is possible now, under the short term Portillo review, and possibilities beyond the next election. It also wants to simplify the benefits system, which this year is expected to cost pounds 80bn - a third of the Government's budget.

One main topics will be the feasibility of targeting benefits which are now universal - state pensions, child benefit, mortgage interest relief and free prescriptions for pensioners - to those who need it most.

Although politically unpalatable, and highly unlikely in the short term, the feasibility of taxing or means-testing pensions and child benefit will be discussed. Abolishing free prescriptions for better-off pensioners and taxing grants under the Business Expansion Scheme will also be on the agenda.

Some senior members of the committee believe major changes, such as ending universal payment of state pensions and child benefits, are impossible before the next election, because of the Government's small majority.

Professor Atkinson will argue against targeting on the grounds that pensioners who saved during their working life would be penalised. He will also argue that the welfare state is a 'savings bank' into which people contribute in order to withdraw benefits when needed.

The most likely targets for cuts in the short term are considered to be invalidity benefit, paid to almost 1.5 million people at a cost of pounds 6.1bn, and housing benefit, paid to almost 11 million people at a cost of pounds 8.9bn.

Labour has alleged that people have been encouraged to claim invalidity benefit as a way of keeping down unemployment figures. Unemployment benefit goes to 715,000 at a cost of pounds 1.8bn. The cost of housing benefit has soared largely because rents in the 'social' housing sector have risen by 34 per cent in the last two years as part of the Department of the Environment's drive to increase public housing rents in line with the private sector.

After Tuesday's briefing, the committee will give its preliminary views to ministers and produce a report to be published in late autumn.

Mr Lilley's office refuses to discuss areas under consideration. A senior spokesman said: 'The official line is this is a long-term review. Everything is available for consideration but that doesn't mean that manifesto commitments are in jeopardy. The Secretary of State has said he doesn't intend to start agreeing to a shopping list of benefits that he is considering.'