Finances Force Britain To Review Welfare Costs

BRITAIN'S financially hard-pressed Conservative government is preparing to rein in spending on the welfare state.

Prime targets are the state- financed National Health Service (NHS) and ballooning welfare benefits which have helped to boost indebtedness to a record British pounds50 billion (US$76 billion) annually.

Like other West European countries which have spent the last 40 years developing government-financed health and welfare provisions, Britain is having to accept that there are limits to what the state should be asked to do. In the European Community, unemployment has reached 18 million. Combined with a rapidly aging European population, government finances are shouldering a heavy burden.

Prime Minister John Major has appointed Michael Portillo, chief secretary of the treasury, to push through a sweeping review of public spending in the run-up to November's budget. Mr. Portillo, widely seen as a Cabinet torchbearer for the free-market ideas associated with Margaret Thatcher, the former premier, spelled out his views in a magazine article circulated among delegates at this week's Conservative Party Conference.

Portillo wants to encourage private medical insurance, extend the market principle to running public hospitals, and gradually replace state-paid pensions with private pension schemes.

His ideas are in line with other West European countries' thoughts on welfare. Earlier this year, the Netherlands ordered cuts in sickness benefits. Sweden has already begun trimming back its generous welfare and health provisions. In Germany, Chancellor Helmut Kohl's coalition government in July approved a series of welfare cuts intended to save 35 billion deutsche marks (US$22 billion) a year and reduce the federal budget deficit by 5 percent over three years.

In Britain, Portillo accepts that the government still has a part to play in providing a ``safety net'' for the sick and unemployed, but he says people ``must rethink what provision should be made for the contingencies of life by the state, and what by the individual.''

Peter Lilley, social security secretary, told delegates to the Conservative conference that in the future, government would crack down on foreigners who came to Britain and claimed welfare support payments and housing benefits. Mr. Lilley said he had no intention of reducing help for people in real need, but was determined to curb Britain's ``something-for-nothing society.''

In his first year as premier, Mr. Major spoke often of the need to maintain the welfare state, and recalled that as a young man of limited means he relied heavily on state-paid medicine during a long period of illness. Like other European leaders, however, he is having to face harsh economic facts.

In France, a study commissioned by the government earlier this year forecast that the deficit in the state pension budget would increase tenfold to $35 billion by the year 2010 if cuts were not ordered. Frederic Oudea, France's social affairs minister, said in August: ``The tendencies are catastrophic.''

Britain's need to maintain a balance between curbs on public spending and an acceptable level of social provision is generating some new thinking on the organization of the welfare state.

David Willetts, a former advisor to Lady Thatcher and now an influential member of Parliament, says modern free-market economies need a welfare state. But he rejects state-financed universal benefits as ``no longer sustainable.'' He favors focusing the child benefit on children up to the age of 5 instead of the present 16, and the age benefit on people 80 years old or over. At present, pensions are payable at 60 years old for women and 65 for men.

``Ever-higher spending stands in the way of serious consideration of the welfare state,'' Mr. Willetts argues. ``It avoids having to face the big questions of the best way to deliver services or to target help on the people who need it.''

Portillo wants to make deep inroads into the British pounds80 billion spent annually on security. In a pre-conference article, he wrote: ``The government now spends too much of the citizen's money. This leads to an oppressive level of taxation which chokes off wealth creation.... Our highest goal is to minimise the size of the state, so that the individual can increasingly take responsibility for his own actions. We must eliminate the de-motivating aspects of our welfare system.''

In the health area, ideas currently under government consideration include ``hotel charges'' of up to British pounds40 a night for people occupying NHS hospital beds that are currently free of charge, higher prices for NHS-prescribed medicines, and tax breaks for people taking out private medical insurance.

It is a line of policy that has political dangers for the government and its prime minister, whose popularity rating is 17 percent.

At the annual conference of the opposition Labour Party, party leader John Smith said that Conservatives were ``not fit to govern.'' He singled out government's ``assault'' on the welfare state for special censure.

The result of the next general election may turn on the government's handling of health and welfare in the next two or three years, some political analysts say. Howard Glennerter, author of a four-year study on welfare in Britain, says that slashing the welfare state could damage the government's fortunes.

``It would attack those people who in the past supported the Conservative Party,'' he says. ``The middle class is a primary beneficiary of the welfare state.''