Clarke insists on need for strong welfare state

KENNETH CLARKE, the Chancellor of the Exchequer, said yesterday that Britain needed a strong welfare state to help people cope with the volatile wages and spells of unemployment which were a natural result of making industry and the jobs market more flexible.

In a clear attempt to reestablish the party's appeal to the centre ground, the Chancellor said in the annual Mais lecture at City University in London that the uncertainty of the jobs market could leave people fearful of change and opposed to it.

'Not only adequate state welfare provision but a whole range of other social policies should alleviate such fears and offer a sense of security in a world where retraining and changes of job are becoming necessary events in most people's working lives,' he said.

Mr Clarke's emphasis on social policies clearly differentiated him from Michael Portillo, his deputy at the Treasury and a likely rival in any Tory leadership contest. It also threatened tension between them in drawing up this year's tax and public spending plans.

The Chancellor hinted in his speech that the Budget might include reforms of the social security system to improve incentives for the low paid. These might include changes to Family Credit and Income Support to make it more worthwhile for the unemployed to take work and for low earners to seek higher paid jobs. Mr Portillo is keen to limit the cost of benefits through means-testing, which tends to worsen incentives.

Mr Clarke's frequent complaints that any important pronouncement he makes is interpreted as a naked leadership bid would almost certainly be justified on this occasion. If anything, it is a coherent attempt to do on domestic issues what Douglas Hurd, the Foreign Secretary, has done for European policy: to drag the party's centre of gravity back from where many on the Thatcherite right would like it to be. By reasserting the importance of the welfare state, Mr Clarke has rejected suggestions that it is inherently left wing to suggest that economic change should be humanely managed.

Mr Clarke said that tackling unemployment had to be 'the main preoccupation of economic policymakers in the 1990s', but argued that the free-market approach successfully used to create jobs in the US had to be tempered. 'The American approach results in unacceptably low levels of social support across the range for those not in work, as well as those employed,' he said.

One of the Chancellor's key themes was the need for the Government to help people cope with the job changes and periods of unemployment which result from a more flexible labour market. He promised measures next year to make it easier for people to transfer their pensions when they change jobs, adding that mortgages also had to be more flexible to cope with greater fluctuations in incomes.

'No individual will see any advantage in a flexible labour market unless he or she sees how career prospects and life- cycle finances can be enhanced by it,' he said.

He urged a move away from direct measures to help the less well-off, arguing that people needed to be given greater opportunities to take part in the market economy, which required better education.

He rejected the notion, long proclaimed by Thatcherites in Britain and Reaganites in the US, that the benefits of buoyant economic growth would trickle down to the less well- off. A strong welfare state was therefore needed to help people who were unable to work.

The Chancellor said employers' demands for skilled workers had widened the gap between the high and the low paid, and that it was unclear how much further this would go. But the Government should try to equip the low- paid for more highly paid work rather than using tax and benefits to narrow the gap.