CONTRACT WITH BRITAIN?: If 'fantasy' became fact, this could be life in the reign of King William

The leaked document canvasses a range of options for welfare reform. Nicholas Timmins reports

Radical proposals for privatising large parts of the welfare state are outlined in the Treasury document leaked yesterday - but as part of a wide range of options which a future government might adopt.

The report, Strategic Considerations for the Treasury 2000 to 2005, was commissioned by the permanent secretary, Sir Terence Burns, to establish how the Treasury should respond to the different scenarios a future government might adopt.

They run from "no change", according to Treasury officials, to options which go well beyond Newt Gingrich's Republican "Contract with America" and include the privatisation of retirement pensions, unem- ployment and sickness benefit.

It does state, however, according to sections of the report selectively leaked by Labour, that "Consideration is currently being given to reducing state support for post-16 education on the grounds that rising demand is 'unaffordable' and private returns to individuals and their employers exceed social returns.

"To change the balance of funding between the taxpayer and other beneficiaries and to inject more market mechanisms into the delivery of training and education, funding institutions (sixth forms, further-education colleges and universities) could be replaced by financing individuals with vouchers, grants, loans and employer contributions."

A further proposal under consideration "would be to treat roads as a utility rather than a public service". Ownership "would be transferred to regulated private companies who would receive their income from road users".

The "Contract with Britain: A smaller state" approach would include reducing entitlement to teenage mothers, setting time limits to benefit payments, and decentralising welfare spending to local government.

Privatising contributory benefits would be a further major step in the United Kingdom, replacing them with compulsory or voluntary private insurance. "This approach is gaining support," it says.

A model exists in the privatisation of Serps, Germany has an opt-out from sickness insurance and Chile has compulsory private insurance for all pension provision. But implementation could take 50 years, and demand for means-tested benefits would rise.

More radical proposals would include "pushing down to local authorities responsibility for delivering health and social security provision". How the needs of the disabled were met would then be a matter for the local authority's discretion.

Intriguingly, however, some radical options are not considered at all. There appears to be no examination, for example, of switching the National Health Service to an insurance-based system, the document noting that the UK's health system is more efficient and generous than that of the United States at lower cost.

The document also looks at Britain's likely economic position by 2015, suggesting on present growth trends that the UK would move out of the top seven of world output and be overtaken by India, Brazil and Thailand, with China becoming the largest nation economically.

Among the recommendations for responding to that are a strengthening of the Treasury's language skills, concentrating on French, German, Russian, Japanese, Portugese and Spanish. A programme with the Foreign Office to further promote English as the main "lingua franca" of the next century would help boost Britain's economic interests.

Greater economic power among developing countries, however, is likely to be followed by demands for greater political power, so that the UK's role in international organisations such as the G7 and the International Monetary Fund "will change as we move down the ranking", according to the leak.

The Treasury also judges that there is less than a 50 per cent chance that Britain will join a single European currency by 1999 - and that the uncertainties over whether, when and how that will happen are "the single biggest challenge" that is facing the Treasury today.

If the UK does not join, the case for an independent Bank of England will be strengthened, as a way of providing greater credibility to anti- inflation policy.