................................................................................ ON THE RECORD RECORDED FROM TRANSMISSION BBC-1 DATE: 28.1.96
................................................................................ JOHN HUMPHRYS: Well Mr Smith, you've been told to think the unthinkable - why? CHRIS SMITH MP: I think we need to take a long and hard look at whether the Welfare State, as it has now emerged, after fifty years or so of actually being there for us. Whether it's emerged as something that really meets the needs of everyone who requires its assistance and that basic question, not abandoning any commitment to social justice, the party remains very clear about that, but to see whether it is appropriate in every drop and tittle to the modern world and modern circumstances. HUMPHRYS: Are you going to reinstate the benefit cuts that have been made under the Conservative Government? SMITH: There have been so many cuts made by this government and it would be so expensive simply to go back to where we started, that we have to look, when we come into government, at what the country can afford. That may well mean that we can't, immediately, put right everything that's gone wrong but we want to make a start and we want to look at some of the very key areas, like pensions and like the fate of the long-term unemployed, where we really do need, I think, to make some immediate changes. HUMPHRYS: What might you reinstate then, you said you won't reinstate everything, that implies that you might reinstate some things. SMITH: Well I think we should get away from simply thinking that reinstatement of what was there before is necessarily going to be the best option. It may well be that we can do better than what was there before and it's taking a long and hard look at some of those questions that I'm engaged in at the moment. HUMPHRYS: Right, so you're not going to turn the clock back to pre-Thatcher days or even pre-Major days? SMITH: Well we need to hold very fast I think to two basic principles that have been there right the way since Beveridge, which this government has been eroding and those two principles are that the Welfare State is based really on two things. One is a recognition that all of us as a community, as a society, have a responsibility to help those amongst us who can't afford to support themselves, but secondly, that we also as individuals have a responsibility when times are good, when we're earning money, to save for those times, in retirement or illness or unemployment, when things are not going to go so well for us. So it's a combination of that insurance principle that relies on individual responsibility, but also that recognises that there's a community responsibility as well. HUMPHRYS: Right, so people have to take more responsibility for themselves, that's what you are saying. SMITH: That was a very basic Beveridge principle, the insurance principle that he set out was very clear, that...for those of us who are earning money, we should be putting money aside and saving for times when they're not going to be so good for us. HUMPHRYS: Right, so in that sense you do want to go back to Beveridge. SMITH: I do indeed want to go back to Beveridge because those two fundamental principles that were in the Beveridge Report, which really got eroded over the course of the last twenty years or so, I think we need to recapture and reform the Welfare State into something that's new. I'd say one other thing, and that is that when Beveridge produced his report, we were in a situation when we had virtually full employment, when people tended to work for one employer right the way through the course of their working life, when a lot of women were not in the workforce and it was a much simpler society in terms of the ability to create a Welfare State. Now it's much more complicated, people go in and out of work, they work for different employers. A lot more women in the workforce, we need to think about their needs as well. HUMPHRYS: And the other thing that's changed is that we now have a Labour leadership that says "we're not prepared to push up taxes to pay for all the demands of the Welfare State". SMITH: What we have is a party that recognises that when you are talking about expenditure of ninety-two billion pounds, which is this coming year's expenditure for the Department of Social Security, a third of all government expenditure, you do have a responsibility as a government to look at that expediture and say "is it meeting the needs, is it being effective in the way in which that very large amount of money, from taxpayers is being deployed". HUMPHRYS: So it isn't just meeting the needs, and
the changing needs as you describe them, but you're saying it's costing too much money. SMITH: It's meeting needs and making sure that the money we are spending is actually effectively and efficiently meeting those needs. Those are the questions that we need to ask. HUMPHRYS: Which is what everybody always says of course. Every government always says that - you've got to spend the money, where it's going to be most effective and so on. But what you're saying quite clearly, is that there is a point beyond which we cannot keep paying for this because we can't afford it and therefore people must take more responsibility for themselves. SMITH: We need always to have in our mind what the country can afford and although I have to say that as a percentage of our overall national wealth we actually spend less as a country on our Social Security system than most of the other advanced industrial countries. So let's not get the .... HUMPHRYS: Yeah but you don't want to spend more, you're not saying because we spend less we ought to arrive at their figures. SMITH: I would dearly like to be able to reduce that ninety-two billion pound budget but I don't want to do it by harming people who are in need and depend on the Welfare State. HUMPHRYS: Let's look at ways you might do that, you might do it by, you saw the problems that Emma, the young mother on that film, the young lone mother was in, you could help her to get back into work and help yourself in the process because she would then come off your bill wouldn't she. SMITH: You have just encapsulated what is going to be one of the fundamental things of our reveiw of the Welfare State because one of the key things is to make sure that we see the Welfare State as a process that helps to bring people off benefit, out of dependency and into the workforce. HUMPHRYS: So how are you going to do it, how are you going to get Emma back into work? SMITH: Well at the moment, what the system does too often is to trap people into dependency. HUMPHRYS: You explained that very clearly, yes. SMITH: It puts obstacles in the way of getting into the workforce, so we are looking at a whole range of ways in which we can make it easier to make that transition. HUMPHRYS: Right, so you saw Emma's problem, she can't go out to work because she can't leave the baby at home by herself, she can't afford a childminder and so on, would you pay for Emma's childminder? SMITH: Well, what we want to look at for a start is making sure that child care facilities are much more readily available than they are at the moment in this country. But what we are also looking at is something like I saw in Australia just a couple of weeks ago, which is called the Jet Programme and it's specifically focused on the needs of single parents and it provides an intensive range of guidance and counselling and advice and help with childcare, with learning, with training, with job opportunities, very strongly focused on the needs of the individual single parent. HUMPHRYS: And if you don't sign up to that, if you don't do what is then required, that is get a job, or get the training, there is a penalty built in. SMITH: It's entirely voluntary and the overwhelming majority of single parents in Australia have opted to take the opportunities that are given because most single parents want to get out to work. HUMPHRYS: Right. SMITH: It's the obstacles that they face. It's not malingering that means they don't want to get into the workforce. HUMPHRYS: Right. Well in that case, if there is no compulsion at the end of it, you can't absolutely guarantee that they're going to get a job, then, it's going to cost money. Now, where is that money going to come from, given that you've already said you're not going to add to the cost of the Welfare State. Where is this money going to come from? SMITH: Well, the interesting thing about the Jet Programme in Australia is that it is now paying for itself. HUMPHRYS: Yeah, eventually, that will happen but in the meantime, you've got to build up to that. SMITH: Because what happens is that you take people off the Benefit Bill, you get them into the workforce, paying Tax. They're less of a drain on the Social Security budget and as a result some entirely positive outcomes. HUMPHRYS: Right. SMITH: So, I want to see if we can put that principle to work on our Social Security budget and help not just for single parents but for people who are trapped in unemployment at the moment. HUMPHRYS: Right, so there's got to be investment up at the front for the payback later on - some years later. SMITH: Well, that is of course precisely what Gordon Brown was talking about. HUMPHRYS: Ah, yes, but that's only going to cover...his scheme is only going to cover one particular group of youngsters. SMITH: Yeah, well. HUMPHRYS: You can't spend that money sixty-three different ways. SMITH: Let's look, just for a moment, at what he was proposing and that was to use the money that he intends to raise. HUMPHRYS: The Windfall Tax. SMITH: From the Windfall Tax on utilities, to use that as a specifically directed set of programmes for people who are under twenty-five and who are in the longterm unemployed bracket. And, there are a series of imaginative proposals that he came up with for that. Now, that's a very useful way of saying: let's take money which is only a one-off tax revenue and let's use that to kick start the process. And then gradually, as those people come off the unemployment bill, money starts to flow back into the Exchequer. HUMPHRYS: I understand that but as you say that is limited.... SMITH: Now, let's apply that principle elsewhere...but in the Benefits system. HUMPHRYS: But you...there aren't...there isn't an infinite number of one-off taxes of that kind that you can tap into. So, the money has to be found from somewhere else for all those different schemes - the Jet scheme that you describe now. I mean we don't have a Jet scheme. Gordon Brown hasn't said that that money is going to pay for a Jet scheme. For instance, it's going to pay for something else. So, where is this money going to come from. Why not, for instance, and this has been talked about - the Cabinet are looking at it - taxing Child Benefit. Is that a runner, as far as you're concerned? SMITH: Well, I'll come onto Child Benefit, in just a moment. But the basic answer to your question is that I'm looking at a whole range of possible solutions to the Welfare to Work problem, I'm sitting down, I'm making sure that every single one of them is very carefully costed. So, that we know exactly what the expenditure is likely to be and where the money is going to come from. In a month or two's time, I hope that I'll be able to come forward with a very specific set of proposals on that. HUMPHRYS: And if you could overcome the practical problems, you would do it. Is that what you're saying? SMITH: Oh, absolutely, because getting people off benefit and into work must be the key to any sensible reform of the Welfare State. At the moment, too often we tend to think of the Welfare State and the Social Security system as simply a matter of paying money to people to have an existing condition and to stay there. I want to see it in terms of the outcomes; the throughput. How people can achieve to get out of benefit and into work. It becomes a hand-up, not just a handout. HUMPHRYS: Indeed. So, the principle that underlines this is investment upfront. Government money - our money if you like - upfront, to pay for something that is going to be of benefit to us you believe in years from now. SMITH: The whole point about a Welfare to work strategy is that within two or three years, you actually start saving money to very considerable extent on the Social Security budget. HUMPHRYS: Once you've made that investment. SMITH: Because you get people out of the trap of benefit and into work and what we're looking at, at the moment, is how it would be possible to afford and to pay for any initial costs that such a scheme would incur. HUMPHRYS: And Child Benefit is one way of dealing with that. SMITH: Child Benefit is not necessarily one way of paying for that. I'm passionately committed to the universal payment of Child Benefit because it does get to everyone who needs it. So, I don't want to damage the universal payment aspect of it. Now, the Social Justice Commission propose that for higher rate taxpayers, the people right up at the top of the income scale, that it would be sensible to consider taxing them. HUMPHRYS: Right, right. Given practical problems, that's what you mean. SMITH: I'm looking at that but there are enormous practical problems and the principle of independent taxation is one of them. HUMPHRYS: Right, of course but if you can get over that, then you're interested in that..... SMITH: That I don't want to damage. HUMPHRYS: But, if you can get over that, you're interested in that idea. SMITH: I'm certainly looking at the issue of whether Child Benefit in its full entirety is needed by people right up at the top of the income scale. HUMPHRYS: Talk about pensions, we have a basic State Pension, we have SERPS, after a fashion. You want to change that - why? SMITH: I want to change that because what this Government has done to SERPS over the course of the last seven or eight years demonstrates how fragile it is. How it doesn't give real security to people because SERPS is based on what is known in the jargon of the trade as a pay-as-you-go system. It means that for today's generation who are in SERPS when they become retired, their pension will be paid by the workers at that time. So, it's not a funded scheme. It's not something where you build up a pot for yourself- HUMPHRYS: Not the sort of thing they have in Singapore. SMITH: -over a period of time. Now, the problem with that is that any government - and, we've seen it in very real problems from this government - any government can come along and can say: right, we're going to cut the benefits. This government have cut by more than half the benefits that people in SERPS were expecting ten years ago. Now, that doesn't give people real security for their retirement for their old age and I want to see if we can come up with someting better. HUMPHRYS: Like what? SMITH: Well, what I'm looking at is whether a funded scheme, where people build up their own pot, for their own retirement, with assistance from the Government and from the employer. When people can build up their own pot, over a period of time, I think, that might well lead to a better solution. HUMPHRYS: That would have to be compulsory, wouldn't it? SMITH: It wouldn't necessarily because, of course, we have compulsion in the system, at the moment. You either have to be in SERPS or you're contracted out and you can only contract out if you have an approved personal pension or an occupation.. HUMPHRYS: But, if it weren't compulsory, then, the people who aren't, at the moment, investing in their own pensions, there's no reasons why they should do it, is there? I mean, you'd have to have a wee bit of compulsion there somewhere along the line. SMITH: At the moment, for anyone who is employed, there is compulsion, you have to be in a second-tiered pension scheme. Something extra, above the basic State pension. Now, what I want to do is look at that existing level of compulsion and not add to it. Not say that people need to spend more. Can it be put into better forms of saving which will provide a more decent return for them? HUMPHRYS: What about the unemployed? Those who some people might feel could get work but aren't actively looking for work. What would you do about them under that sort of scheme? SMITH: Well, of course, what Frank Field has suggested and he spelt it out in your film - is that there should be some process of crediting in to their second tier pension of people in those sort of circumstances. HUMPHRYS: Like that idea? SMITH: Now, it's a nice idea, if it can be afforded. And that big question of can we afford that sort of system is one of the things that I'm looking at, at the moment. HUMPHRYS: So, if you could afford it, then, that's the road you'd like to go down? SMITH: It would, certainly, be good to be able to help people who are on low incomes or who have periods of unemployment, in a way that they're not helped, at the moment. But, I need to make sure that that is affordable within existing levels of public expenditure before I could even begin to endorse that, in practical terms. HUMPHRYS: Because the so-called transition costs, before the new scheme is up and running and doing what it's meant to do would be pretty high, wouldn't it? SMITH: Well, that's a further issue that we're looking at in some detail because, of course, how you switch from a pay-as-you-go scheme into a funded scheme is, actually, one of the big dilemmas. HUMPHRYS: How are you going to square all the sorts of changes that you've been talking about today with MPs like Alan Simpson, who say - he said it on that film - don't muck about with the Welfare State. The really unthinkable thinking, the really unthinkable would be to leave the Welfare State..is to fund it properly. SMITH: Well, I want to have a Welfare State that meets the needs of a modern workforce, in a modern society, that helps people to get off Benefit and into work; that provides real security for retirement and doesn't leave everything open to the vagaries of - heaven help us - future Conservative governments coming along and making further cuts. I want to have something that provides real security, getting people out of dependency and into security. That's what the Welfare State ought to be doing. Now, I'm not abandoning any fundamental principles. I want to see a Welfare State in exactly the same way that Beveridge and Attlee wanted to see it but I think we can do a lot better than after seventeen years of Conservative government we're doing at the moment. HUMPHRYS: Chris Smith, thank you very much, indeed.