Britain Considers Shrinking Its Generous Welfare State, Including Health Benefits

BRITISH Prime Minister John Major has ordered every corner of his government's cupboard to be scoured in a search for deep cuts in public spending.

Entrenched ideas about social security and publicly funded health care are coming under scrutiny in a policy review that politicians and analysts say will transform - and in key areas shrink - Britain's welfare state.

Mr. Major has cast Michael Portillo, chief secretary to the Treasury, in the role of hatchet man. His assignment is to slice into Britain's public spending budget, now 250 billion British pounds (US$357 billion) a year. Downing Street sources say Major also wants to reduce government borrowing, now forecast to rise to 50 billion British pounds a year, but is opposed to tax increases.

"The only answer is to curb public spending, and that must mean taking a fresh look at the welfare state," a Treasury official says.

The prime minister, apparently impressed by United States precedents, has said that unemployment benefits in the future may become "workfare," where recipients take low-paid jobs. But he was given a quick reminder of the political sensitivity of that issue. A Mori poll this month showed 47 percent against workfare and 39 percent in favor. Among the unemployed the workfare principle was rejected 2 to 1.

The decision to order the first review of the welfare state since Margaret Thatcher came to power in 1979 was attacked by Harriet Harman, Portillo's "shadow" in the opposition Labour Party, as a "panic response" to the government's difficulties. She forecast that the review would produce "worse policing, worse schools, and worse health care".

Senior Conservative backbench members of Parliament are nervous, too. James Couchman says any erosion of the principle of providing free health care would be "deeply resented throughout the country."

THE welfare state, launched by the Labour government that came to power in 1945, is a deeply ingrained part of British life. It provides universal pensions, free health care, and free education.

Politicians such as Mr. Couchman say any government that seriously eroded the welfare state would pay an electoral penalty.

David Willetts, a Conservative MP who entered Parliament last April and is a former Thatcher economic adviser, counters that the time has come to prune the welfare state. He points to Britain's ballooning 79 billion British pounds cost for social security and notes that one-third of it goes into state-funded pensions.

Mr. Willetts has urged the government to raise the retirement age for both sexes to 67. It is now 60 for women and 65 for men. Like Portillo, a free-marketeer regarded as a rising star in the Conservative Party, Willetts favors targeting welfare to people most in need, and says universal benefits should be phased out. He is getting solid support from Peter Lilley, social security secretary, who has advocated incentives for people to opt out of state schemes and buy private pensions.

Major signaled a fundamental rethink of public spending with a speech to Conservatives Feb. 3 that stressed that governments in many countries were under public-spending pressure and were looking to ease the burden.

The Labour Party has made ritual criticisms of the government's economy drive, but John Smith, its leader, has been careful not to dismiss it out of hand. Mr. Smith, who was elected to lead the party nine months ago, broke with Labour's traditional support of state ownership, trade union power, and high taxes.