Steve Richards: A big step forward on the path to welfare reform, but there is difficult terrain ahead

Thank goodness the Chancellor Alistair Darling is planning to break the Government's needlessly restrictive golden rules. When he hinted last week that he would borrow more than the rules allow, all hell let loose. It was as if we had fallen out of the ERM and been taken over by the International Monetary Fund at the same time. Yet the eruption of disdain buried something more significant. Darling prepares the ground to make the right move.

The so-called golden rules were always a product of the Government's insecurity rather than the basis for a wholly rational economic course. Fearfully defensive from the beginning, New Labour felt the need to show it had hemmed itself in: "Look we cannot act irresponsibly even if we want to." As a result, at times, it was irresponsibly prudent. Now to a noisy chorus of jeers it has no choice but to prepare the ground for an unshackling of the chains.

The confused disconnection between the outrage at borrowing levels and the demands for higher spending is highlighted most vividly in relation to welfare reform. The Conservatives are as keen on radical reforms as a section of the Labour party. But, in the short-term, the proposals will cost money to implement. Constructive welfare reform is expensive, sometimes prohibitively so.

In the mid-1990s, Tony Blair sang the praises of Frank Field. Shortly after he sacked Mr Field as social security minister, I asked him why it had all gone wrong. In great detail he explained to me that Mr Field's ideas would have cost a fortune. Plenty of other welfare ministers have come up against a similar barrier as they have proclaimed vaguely their determination to reform welfare.

Now it is the latest Work and Pensions Secretary, James Purnell, who moves on to this terrain. Mr Purnell's plans must be the most previewed set of proposals since 1997, quite an achievement in an administration that has always been happier previewing policies rather than implementing them. The Green Paper was leaked in full at the end of last week. Mr Purnell has been out and about explaining the ideas for several days.

In some ways we have known about the proposals for a lot longer than the last few days. The Government has been contemplating reforms along these lines since the middle of the second term. I recall getting a phone call from a senior Downing Street figure a few years ago proclaiming changes similar to the ones announced yesterday, arguing that this was "New Labour at its best", establishing pathways to work in place of a welfare passivity for new claimants. These pathways will now apply far more widely, a significant step forward but not quite as revolutionary as some have claimed.

Indeed we can go much further back than the Government's second-term initiatives. As Mr Purnell has made clear in his interviews, there is an echo with New Labour aspirations from the mid-1990s. In an interview with me in 1998, Gordon Brown laid out the principles of welfare reform. They included getting those capable of work off welfare and targeting resources on those genuinely incapable of work. To some extent the Government has practised what it has preached with its various welfare-to-work initiatives ever since, but still the figures claiming benefit remain stubbornly high.

In the past more has been proclaimed than achieved partly because welfare secretaries move on as quickly in this Government as ministers for transport. It was not so long ago that David Blunkett returned to the fold with a mission to sort out welfare. He was by no means alone in holding the brief for about as long as it takes for a jobseeker to claim his allowance. The madness of the constant reshuffling at the top is heightened by the complexities of dealing with this issue, finding the right agencies to distinguish between those capable of work and those genuinely who cannot and then creating the "pathways" back to work.

But above all the reforms are expensive to set up. Yesterday in the Commons, the shadow Work and Pensions Secretary Chris Grayling suggested that it would be three years before savings could be made. In the meantime, as Mr Purnell made clear in his statement, there would be "personalised support" for everyone who needs it. He added vaguely in response to Mr Grayling's inquiry that his plans would be "fully funded". We shall see, or rather we shall see in several years' time as these are still the salad days of welfare reform, where green papers are preferred to ruthlessly quick implementation.

For now the immediate politics are more significant than the practical consequences of the reforms. David Cameron is typically astute in giving his support to the proposals. They are close to his party's ideas so it would be daft to oppose them. Strategically he repeats his pivotal support for Mr Blair over the reform of schools.

That was the moment that marked the end for Mr Blair, when Mr Cameron decoupled the former prime minister from the Labour party and claimed him as a leader implementing Tory policies. Instead of lurching off rightwards in order to oppose for the sake of it, Mr Cameron claims Mr Purnell as another like-minded ally, and awaits the anguished howls from Labour rebels. New Labour's deep identity crisis gets deeper.

In terms of the subdued battle within the Labour party about its future, Mr Purnell becomes a prominent figure, displaying a forensic mastery of detail that is his distinctive strength. Even so it is premature to envisage the youthful Work and Pensions Secretary as prime minister within the next few months. In the current febrile climate anyone who gives a half-decent interview on the Today programme is hailed as a possible prime minister by some Brown-hating columnists.

Such claims do not harm Mr Brown especially, but denigrate the job of being prime minister. As somebody who worked for Mr Blair told me recently every minute of the day a prime minister is faced with decisions that can be summarised along these lines: "Do you want to slit your wrist or cut your throat?" They are all nightmarishly tough. With commendable speed Mr Purnell has navigated himself around the thorny terrain of welfare reform, but he has not yet implemented his ideas – a much bigger test.

His proposals are potentially a big step forward on a path tentatively travelled for years, but there must be a more candid debate about the start-up costs of reform. As I have argued before, if the Conservatives are sincere about encouraging the establishment of many new schools in poorer areas, they will have to find more cash. The same applies to the provision of genuine choice in the NHS. Similarly reforms of welfare are close to meaningless if they are plucked out of context.

Far too much public money is wasted on benefits, but more cash will be needed to bring about savings. Mr Purnell cannot move forward unless Mr Darling breaks his rules.

s.richards@independent.co.uk