Yet, as many of those who responded to the consultation process -- including Age Concern -- pointed out, the Government failed to review the welfare state comprehensively. Instead, they advanced proposals without discussing alternative principles. Those groups said that the Green Paper failed to discuss clearly the role of social insurance, universal benefits and means-testing within the social security system. Much of today's debate has focused on the social insurance principle and means-testing. Labour Members have fought hard for years to preserve the contributory principle, so I am saddened to see that we have abandoned that principle today.

Far from criticising support for the amendment as cherry-picking, I argue that the amendment will act to support the Government's aim of providing work for those who can and security for those who cannot. We welcome the new deal that encourages people to enter work and to save. That is an essential part of a welfare reform package. We welcome also the additional assistance for young people who are severely disabled, and I acknowledge that the linking law will ameliorate some of the effects of these changes. They are good measures. However, it is counter-productive to their fundamental aims for the Government to alter the contribution requirements and to means-test incapacity benefit.

We argue that our aim is to modernise the social security system, and we should modernise a system that was set up at a time when families had one breadwinner -- usually the man -- and wives stayed at home and looked after the children. However, one income is no longer adequate, and very few people are fortunate enough to stay in one type of employment for most of their lives, which was commonplace when the

Beveridge reforms were introduced. Instead, we have so-called flexible working, job insecurity and many part-time jobs.

We must not forget that even people who are being paid the minimum wage and are working 16 hours a week -- that is classed as full-time work for the purposes of means-tested social security benefits -- still do not earn enough to meet the lower earnings limit and do not, therefore, pay national insurance contributions. We have insecurity, or flexibility, yet far from modernising the system to create a contribution requirement that would reflect that flexibility, we are introducing rigidities for contribution requirements. We are doing exactly the opposite of modernising the system to reflect the modern-day experiences of people in the workplace.

We also want to encourage people to be self-sufficient and thrifty and to save for the future. How can means-testing incapacity benefit help to achieve that?

The majority of disabled people do not have pensions. Surely we want to encourage them to take out pensions. If we do not, they may, when they retire, receive some incapacity benefit, but they will have failed to provide additional resources, so they are likely to depend on other means-tested benefits, which will cost the state more.

Under the Tories and their salami-slicing policies, we learned that the more means-testing -- which allegedly targets those most in need -- is introduced, the more expensive the system becomes. That is not only my opinion, but that of many people, including representatives from the private sector. It is interesting that, in its submission to the Green Paper, the Association of British Insurers said:

"The interrelationship between state benefits and what insurance companies can offer needs to be properly understood by government, by insurance companies and by the public. A stable framework is needed in which people can make plans which will not be disrupted by a subsequent change of government policy. People naturally are resentful if, for example, having saved for a specific welfare need, they then discover that they have been wasting their money and that they would have obtained the same benefit from the state for nothing. Conversely, if people have reasonably expected that the state will provide, they are aggrieved if suddenly the state decides not to provide."

The private sector, which wants to encourage people to save, recognises the disincentives that are created in the social security system. That point was made time and again in submissions to the consultation paper.

The Department of Social Security's summary of the 340 responses to the disability benefits consultation paper said that the issue most frequently raised was the perceived unfairness of taking into account income for which people have already contributed against a benefit that is also earned through the payment of contributions.

Contrary to the impression that my hon. Friend the Member for High Peak (Mr. Levitt) tried to give, the people who will be affected by the measures are not rich people with enormous pensions. If they have pensions, those pensions are relatively small, and although the Secretary of State correctly stated that 44 per cent. of people on incapacity benefit are in the top two quintiles of the earnings table, that does not take account of the fact that their income includes disability living allowance, which is supposed to reflect the additional costs of being disabled. That benefit pushes people higher up the earnings table. That applies only to people who already have occupational pensions. The majority of people on incapacity benefit have below-average incomes; only 25 per cent. are in the upper 40 per cent. of the income range. That demonstrates that, on the whole, people who have disabilities have a shorter working life and one in which they are able to earn less than other people.

Such people, who do not have savings and who perhaps have a progressive illness and know that their working life will be curtailed, will be listening to the debate. Many have in the past responded to exhortations to save for the future and today will be wondering why they should bother. That is why I argue that targeting does not, in the long run, save money in benefits, but costs more.

Last week, the Prime Minister, in his tribute to John Smith, said:

"One of the first acts of his leadership was to establish the Social Justice Commission on healing the divisions of the Conservative years".

It is interesting to read the social justice commission's comments about welfare reform. It said:

"In our view, the Social Security system should be built upon the foundation of social insurance."

It considered the arguments of some of my hon. Friends that it is best to target benefits on those who most need them, but said:

"It is often argued . . . that a simpler and cheaper solution to the problems of the Welfare State would be to means-test all benefits so that they go only to the people who `really need them".

It went on to say that "the strategy is fatally flawed".

It then said that:

"means-tested benefits, which cannot prevent poverty are also remarkably inefficient at relieving it . . . Moreover, these benefits are extremely expensive to administer . . . a further disadvantage of means-testing is that it penalises savings . . . instead of providing a predictable and stable financial base from which people can deal with change, means-tested benefits create further insecurity".

That echoes the comments of the Association of British Insurers. The commission said also that means-tested benefits "deepen the problem of social exclusion" that this Government are committed to eradicating.

I appeal to Ministers to listen to those arguments. If we are aiming to deal with dependency and trying to bring people who were excluded during the Tory years back into the mainstream of society, we should think again about the measures in clauses 53 and 54.

Mr. Michael Connarty (Falkirk, East): I have been listening with interest to my hon. Friend, and I have been reading as much as I can on this subject in the past week. I noted that, following the publication of the Crossman paper, it was said that people were willing to pay through the contributory system because they felt that they were storing up something for their family for the future, but they would not want to pay through direct taxation. Clause 53 clearly breaks the link between benefits and the contributions that people make over their lifetime, and is likely to make people wonder whether the contributory system has anything to offer them.

Dr. Jones: My hon. Friend is exactly right. I wish that the Secretary of State and Ministers would consider not only the consultation on the Green Paper, to which I have referred, but the results of their research on public attitudes to the welfare state and the response to reform, which clearly demonstrates that there is considerable public support for the social insurance principle.

There is a strong feeling that those who have paid into the national insurance system should be able to gain from it when the need arises, regardless of circumstances.

In that research, members of the public pointed out to the Government that means-testing was not only expensive for the state but intrusive for individuals. The public regard means-testing as unfair, because the low thresholds might have the effect of arbitrarily excluding people who are in genuine need, but who narrowly fail to qualify. Many pensioners feel that way about the failure of the state pension to keep up with means-tested benefits. They resent the fact that, if they have a small occupational pension, they are deprived of the benefits received by people who have not saved.

The research showed that the majority of people considered that, if there was to be means-testing, it should take place on the way in, by requiring higher earners to pay higher contributions, instead of on the way out, by limiting payouts to those on low incomes and with low savings.

The research that was carried out for the Department of Social Security acknowledged that some people would like benefits to be targeted on those with a low income and low savings, but the overwhelming majority -- 69 per cent. -- consider that a person's contribution record is more important than their means in determining entitlement to benefits.

The social justice commission also considered disability benefits. Its report says that the requirements for a comprehensive disability income are twofold. First, it should compensate disabled people for the additional expense of being disabled, by offering a tax-free benefit based on up-to-date evidence of living costs, including the additional costs that disabled people must meet. Disability living allowance is such a benefit, although the social justice commission commented on its many inadequacies.

Secondly, as disabled people are much more likely than others to be unemployed or only partially employed, a comprehensive disability income should offer some compensation, in the form of a taxable benefit, for the loss of earnings potential. That is precisely what incapacity benefit was designed to do. It is a taxable benefit, so, rightly, people on a high income are already taxed on it. However, it is designed to reflect the fact that the working years -- and often the earnings potential -- of people who are disabled are much curtailed.

That is exactly what my hon. Friend the Member for High Peak said that the benefit was about. It is about income maintenance. It is about trying to bring disabled people up to the level of the rest of us. A measure of the success of that policy should be whether disabled people have the same range of income as non-disabled people. I put it to my right hon. and hon. Friends that if we are to end discrimination against disabled people, we should ensure that they have the potential to earn an income similar to that of people who are not disabled but in the same type of job.

I fear that the Government are out of touch with public opinion on the issue. For the sake of saving, ostensibly, £700 million in the long run, they will greatly damage the social insurance principle. They will discourage saving. The advice that the Government are giving those people who might qualify for incapacity benefit, but who are struggling to continue to work and perhaps retraining, is, "Give up work and go on benefit now; because if you do not, you may lose out in future."