David Marsland thinks the welfare state is a bullying fraud that enfeebles the poor, squanders the public purse and robs us of our freedom

Throughout the second half of this century the state has seized control of all those essential services which socialists have tricked us into defining as "welfare". Sooner or later, this bizarre system will have to be replaced by more efficient arrangements, ones better suited to a free society. I believe that we shall look back on the welfare state with the same contempt with which we now view slavery or feudalism.

Annual public expenditure - the vast bulk of it on welfare - increased in real terms from Pounds 120 billion in 1963 to Pounds 7 billion in 1994. Over the same period it nearly doubled as a proportion of Britian's gross national product.

The destructive effects of extravagant welfare spending are manifest. It is bankrupting Britain. Public expenditure must be radically reduced and focused on essentials rather than wasteful luxuries. Welfare expenditure is not investment: it is conspicuous consumption designed to demonstrate the virility of the philanthropic conscience. Even if we could afford it in economic terms, its costs in moral and psychological damage to the population are intolerable. The "hand-out culture" of state welfare, with its exaltation of rights without responsibilities and its celebration of egalitarian envy, is turning hard-working people into conformist yet ungovernable underclass serfs. It is paralysing the spirit of enterprise.

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Worse still, it is subverting our freedom and corrupting our most precious institutions - marriage and the family foremost among them. It is proving a more destructive "enemy within" of the values of our civilisation than national or bolshevik socialism ever were from the outside.

Official estimates have identified fraud in the welfare system of some Pounds 5 billion every year. I conducted an interview for BBC2 with a young welfare conman. He claims to draw three unjustified helpings of unemployment benefit, and, making use of further false identification papers, three lots of housing benefit: Pounds 300-Pounds 400 a week regularly and a BMW from your pocket and mine for nothing!

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Free labour, the market, and democracy have triumphed as their primitive antecedent institutions have been challenged and replaced. It remains for us to challenge the equally primitive institutions of state welfare, and to replace them with a modern system complementary to free labour, the market, and democracy. Social scientists - from David Glass and Richard Titmuss, through Peter Townsend and Brian Abel-Smith - have played a mischievously influential role in legitimating state welfare. We have a special responsibility, therefore, to pursue an understanding of Britain's social problems and provide rational solutions to them to replace the spurious concepts and utopian schemes proffered by the welfare state apologetics which still dominate social policy analysis.

The welfare state is not, as its protagonists have foolishly persuaded themselves, the pinnacle of civilised society. On the contrary, as current problems in France and Germany suggest, and as recent crises in Australia, New Zealand and Sweden confirm, state welfare is to be faulted on many grounds.

First, the whole concept of the welfare state is philosophically incoherent. For some it is a stepping stone on the long road to socialism. Others view it as a new model society which transcends the contradictions of capitalism while somehow escaping the threat of domination by an autocratic state. Others again support it, despite its persistent failures as a method of helping the unfortunate. It means all things to all men, and nothing sensible to anyone.

Second, the forward march of normal economic progress, and the massive generalised increase in living standards, make the bloated system of universal state welfare entirely unnecessary. Temporary emergencies aside, poverty is a figment of the poverty lobby's fevered imagination. Even the people at the bottom of the income distribution are better off than the average of the 1960s, let alone the 1930s.

Third, the costs of the welfare state have escalated to a pitch which threatens national bankruptcy. Levels of state expenditure, taxation, and public debt are grossly excessive. Money that should be spent on investment for economic growth and future prosperity is being squandered on extravagant welfare.

Fourth, the welfare state is largely ineffective. The inevitable consequence of its monopoly power, its bureaucratic character, and its inattention to the varying needs of individual people, is that it fails routinely to help those who genuinely need special support. It squanders billions of pounds every year on third-rate services delivered to the wrong people to little useful effect.

Finally, and worst of all, it wreaks enormously destructive harm on its supposed prime beneficiaries - the vulnerable, the disadvantaged, and the unfortunate. It makes of perfectly normal, entirely capable people who happen to be in temporary difficulty, a fractious, subjugated underclass of welfare dependents.

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A small and changing minority of people need safety-net support from time to time. The vast majority do not. We should turn the whole machinery of state welfare over, gradually and by voluntary choice, to the market and voluntary agencies. The state should play no part in the ownership, funding, or delivery of welfare services for the prosperous majority in the mainstream of society. It makes no more sense for the state to supply education, pensions or health care in Britain than for the state to produce machinery in China or food in Russia. The free, competitive market simply does it infinitely better.

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Envisage wholesale liberalisation and straightforward privatisation of education, health care, housing, pensions, unemployment insurance, income protection, postal services, transport, and most local government services. All these functions would be taken over by the commercial insurance industry, mutual associations, trade unions, profit and non-profit schools, colleges, hospitals, and clinics, and other specialist companies competing in a free market of welfare.

As far as the bulk of the population is concerned, the state's role should be restricted to regulation. Enormous reductions in taxation should be possible. Most people could look after themselves and their families, with prudent self-reliance, out of their own moral and economic resources, insuring against misfortune, planning for their future, choosing freely among competing suppliers of real welfare.

For those - very few - people who are incapable from time to time of looking after themselves and their families from their own resources, the state should remain responsible. This does not require the massive machinery of the welfare state. Modest help organised through the tax system and by means of small-scale organisations at local level, making maximum use of voluntary agencies, would be sufficient.

In order to minimise dependency, loans should be preferred to grants, and help should not be provided except in return for effort - workfare, participation in training, therapy where appropriate.

The whole system should be based on need - which should be demonstrated and closely monitored - rather than on fictitious rights. The exclusive objective and justifying mission of the programme should be to restore clients as quickly as possible to self-reliance. The welfare state, by contrast, with its stage army of rights-obsessed social workers, positively encourages unemployment, single-parenthood, spurious invalidity, fraud, criminality, and underclass dependency.

A special assistance programme organised in this form would provide much more effective help than the welfare state has ever done for those who genuinely need support. People who have the real interests of the disadvantaged at heart should listen to Tony Blair and begin to "think the unthinkable", as he has recommended, along these radically innovative lines.

If we are to restore and renew our society, we must urgently initiate a programme of radical reform of state welfare. Unless we succeed, the future is bleak, under Conservative and Labour governments alike. There will be gradually increasing impoverishment as our economy is overtaken by enterprising, profitable rivals; escalating social collapse as the family and the local community decay; and worsening social conflict as groups squabble over dwindling resources.

The welfare state cannot provide genuine security, let alone real welfare. It provides no effective protection against unjust inequalities. It serves no genuine public good. It inhibits bona fide social investment. It is, in short, a bullying fraud which robs us of our freedom and our moral autonomy.

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David Marsland is professor of social sciences and director of the Centre for Evaluation Research at Brunel University College. Welfare or Welfare State? is published by Macmillan, Pounds 14.99.