HERE is another inescapable fact when it comes to the Welfare State (editorial, July 18), restated by the independent Commission on Social Justice: however we choose to deliver welfare, it still has to be paid for. There are no quick fixes for the Treasury to make welfare costs disappear. If taxes are cut, private insurance premiums will have to take the strain.

We should begin to distinguish between different types of welfare cost. It would be a brave insurance company prepared to offer comprehensive unemployment cover given the new level of uncertainty in the labour market. It is still true that only a state-sponsored insurance scheme can pool the risk efficiently and cheaply.

A more flexible labour market requires a more flexible benefits system. More of the part-time, low-paid work available should count towards insurance cover if the drift towards means-testing and the unemployment trap is to be reversed.

With pensions, we must devise a way to reduce both political risk (of Governments raiding the National Insurance Fund) and financial risk (of the capital markets).

Guaranteed top-ups to the basic state pension for the lower-income retired are essential in the short term, but for tomorrow's pensioners more money has to be invested in retirement.

A funded second tier of pensions (including low-cost industry pensions along the lines of the Australian model) should draw contributions from every working person and employer. Government credits will have to be paid for those who are seeking work or doing the unpaid work of long-term care, for example.

Labour's proposed Royal Commission on funding long-term care is a helpful suggestion. But it is a fair bet that if William Beveridge were alive today, he would see this as a classic social insurance candidate, where the costs and risks should be shared according to ability to pay.

James McCormick,

Research Fellow,

Institute for Public Policy Research,

30-32 Southampton Street,

London.