Leading Article: Look again at a guaranteed income

This morning John Major, Kenneth Clarke and Peter Lilley should be on the phone to the Institute of Economic Affairs ordering up copies of the IEA's latest publication. They will find Hermione Parker's study of the combined effects of taxes and benefits on family life and work incentives - reported elsewhere in the Independent today - shaming reading.

Far from improving work incentives over the past 15 years, the Government - despite its high-blown rhetoric about ending the culture of dependency - has worsened them. It has achieved the remarkable feat of both making life tougher for those on out-of-work benefits and making it harder for them to get back into work.

By trimming away at the benefits which provide platforms on which people can build earnings and savings, by increasing means-testing, by insisting on retaining a system that requires people not to work and, in large measure, not to train in order to receive benefit, social security expenditure is reaching a position that is simply unsustainable.

From being a system aimed at preventing poverty by helping people to help themselves, social security is increasingly becoming a programme simply of poverty relief for millions below retirement age.

Today's study comes on top of recent Government statistics which revealed the alarming fact that one in four families now receives at least one of the major means-tested benefits. This is not a position in which a modern, competitive, society can afford to find itself. And across the political divide there is a growing recognition that this is true.

Answers, needless to say, are harder than the definition of the problem. Hermione Parker's solution is another attempt at the basic income guarantee - an idea on which both Labour and the Conservatives worked long, hard and largely fruitlessly in the Sixties and Seventies. It is a revolutionary answer but one on which much quiet academic work has been done in recent years. It may be too revolutionary. To be implemented, it would require cross-party support. But the time has surely come for another close examination of it.

While that happens, however, some policy guidelines for the forthcoming Budget are clear. First, if the Government is serious about work incentives then whatever tax cuts there are should be in thresholds, not in headline rates of tax. Second, a halt must be called to the policy of driving remorselessly upward council and housing association rents. Third, more schemes to allow the unemployed to improve their skills in return for benefit are needed. Fourth, some further action on child-care costs should be contemplated. And fifth, tax policies that have eroded the position of families with children should be changed to restore some balance in their favour. These are not a set of answers. They would, however, all be steps in the right direction.