It seems appropriate that just as the ‘reformed’ welfare state is ushered in, Margaret Thatcher should be ushered out. Appropriate too, that she, whose policies generated so much homelessness, should end her days in the Ritz. There used to be a genre of Labour autobiography with titles like ‘From Crowscaring to Westminster’, ‘From Workshop to War Cabinet’, which expressed something admirable about their subjects. ‘From Grantham to the Ritz’ isn’t quite that. The procession of Tory grandees on TV reminding us how Thatcher saved the economy, rescued the country from the anarchy of the 1970s, restored our faith in Britain etc made depressing viewing since almost none of those things is true, while the acres of newsprint devoted to her career tell us much more about ourselves than they do about her. We did not hear from David Cameron that she eventually became an embarrassment to the Conservative Party. Before the great banking bust of 2008, which owed much to her policies, he had ditched her and her legacy. No one pointed out either that, despite her well-known convictions and refusal to U-turn, she could be politically cautious. It is unlikely, for example, that she would have set about the welfare state in the way Cameron and Osborne have done. What she had in common with them was an overriding desire to manipulate the electorate for the benefit of the Tory Party. While she might have hoped that popular capitalism would turn us all into entrepreneurs she chiefly hoped it would turn us all into Tory voters. While Cameron and Osborne argue that the new welfare state is designed to promote the interests and prosperity of the country, what they actually hope is that it promotes the interests and prosperity of the Conservative Party.

For all that, however, this is not the end of the welfare state. It will continue to spend sums on social assistance that would have astonished Beveridge. There is certainly a case for major administrative reform of the system, which has grown in a haphazard way. It meets needs as they appear and is as a result a complex system that is difficult to keep a grip on or to understand. But it is not a scrounger’s paradise. On the contrary, its complexity tends to result in people being denied their entitlements. So there would be an argument on grounds of administrative simplicity for a universal credit that bundled benefits into a coherent single payment. Unfortunately, there is no average recipient of welfare benefit. Families and individuals differ enormously in their needs, which makes a universal benefit difficult to calculate equitably let alone administer. That is why capping the payment will be so unfair, since in its provision for the unemployed, universal credit appears to pay no regard to the crucial variable: family size. Were the intentions of those who have devised the new system benevolent this would not be an insuperable difficulty. Alas, their intentions are anything but benevolent, and, an indication perhaps of how much they care, the new system, in common with all the legislation of the present government, is being rushed out almost unproven. It was supposed to be tested in four localities, but now it is to be tested in only one (Ashton-under-Lyne), and we can bet that the test run will be pronounced a success, with predictable consequences. It is also designed to be administered largely online. But welfare claimants, especially older ones, have less access to the internet than anyone and are most likely to be baffled by it. Replacing human contact with the internet is thus likely to discourage many people from claiming benefits to which they are entitled: something presumably known perfectly well to the Department for Work and Pensions. In any case, given the record of Whitehall’s IT disasters in the last few years, it must end in tears.

What really drives this legislation is ideology and electoral calculation. Many Tories simply hate the welfare state and its beneficiaries, and as the party becomes increasingly right-wing so the determination to do away with the state system, or diminish it as much as can safely be done, becomes stronger. Over the last five years the Tories have succeeded, quite illegitimately, in presenting a crisis of the banks as a crisis of the state generally and the welfare state in particular. The new legislation has also to be seen in the context of the cuts to benefits already introduced by the coalition and the wholesale onslaught on the remaining public functions of the state. Many of its functions, of course, have already been privatised, with punitive consequences. Whether the disabled can work or not is, for instance, largely determined by a French firm famous for demonstrating that the halt and lame can, despite appearances, walk.

Underpinning the hostility to the welfare state is a relentless ideological stereotyping in which the Tory tabloids have played their usual role. Take the way the Daily Mail (and George Osborne) treated the deaths of the six Philpott children, insinuating that what happened was in some way the fault of the welfare state, that under a less generous system, one which forced people to work rather than allowed them to idle away their time, the deaths would have been avoided. (The reports tend to play down the fact that the women in Philpott’s life always worked, even if he didn’t, and that a substantial portion of the family’s income came from tax credits. The new cap on the total benefits that can be claimed by a single household will, however, make a big difference to the income of families like Philpott’s.)

The government and the tabloids have also done their best to drag immigrants into the row, depicting them as dole scroungers par excellence. That this is far from the truth is something you will not learn from the prime minister or the home secretary or the chancellor of the exchequer or the editor of the Sun or, probably, the leader of the opposition. That there are welfare scroungers and layabouts is true enough: there are layabouts and scroungers in any institution – see the MPs’ expenses scandal. What is not true is that scrounging is characteristic of welfare systems or that the unemployed lead the life of Riley.

As important as ideology is the electoral interest of the Conservative Party, though the two are intimately related, and here Cameron and Osborne are indeed Thatcher’s children. Osborne, the most political of ministers, seems to be the driving force here. He wishes to serve the interests of the rich, but has a very narrow conception of what those interests might be, which is why there is no Plan B. Osborne’s substitute for Plan B was to reduce the top rate of tax from 50 per cent to 45 per cent. Since Plan A is not very popular, and Osborne hasn’t put forward any alternative to it, policy has increasingly become a matter of trying to make potentially unpopular measures – like almost everything in last year’s budget – acceptable to the electorate. Here the changes to welfare legislation are indispensable. Their function is to mobilise those perceived to be hardworking and striving – that is, most people – against the scroungers and skivers who spend the whole day in bed: to turn the not very well off but not really poor against the really poor, whose creature is, of course, the Labour Party. One casualty of this strategy is social housing. The lack of affordable housing is absolutely fundamental to Britain’s social and economic problems; and New Labour did no more to solve it than the Conservatives. Far from making housing available to those on low incomes, both parties have connived at a policy that rations housing and creates a private market in scarce houses at ever rising prices. In this year’s budget Osborne did his feeble best to ginger up this market. But for those who can’t get a foot on the ladder, or rent one of the ever decreasing number of council houses, the new welfare legislation means either bed and breakfast accommodation or homelessness. And the coalition seems determined to convince the rest of us that their homelessness is the fault of the homeless.

All this was exemplified by Osborne’s grotesquely stage-managed speech at a Morrisons distribution depot earlier this month. Much care was clearly taken with both place and audience. The place was Sittingbourne in Kent, a marginal constituency surrounded by marginal constituencies; the audience was youngish (but passive), obviously in work but probably not well paid. Osborne’s address was thoroughly dishonest, but its message was plain. The scroungers were living off the taxpayers, i.e. you, and the cuts in welfare were therefore fair, and you should be grateful to the Conservative Party for arranging them. Osborne looked very uneasy, and delivered his speech in a flat monotone. Not, presumably, because he knew what he was saying was mendacious, or that the occasion was in every way false, but probably because of the company. Posh boys with millionaire dads have little to do with people not of their own class – and it showed.

A striking feature of his speech was his attack on ‘poverty’ charities, ‘vested interests’ who make a fuss all the time. Before the 2010 elections charities were to be the basis of the Big Society – which would be more sensitive, more caring, more vigorous than the sclerotic state bureaucracy. After the election, however, Cameron and Osborne discovered – what they should already have known – that the voluntary charities were heavily dependent on state assistance, especially local government assistance, which immediately rendered them suspect (in the long-term, it might render them bankrupt). Charities also have a disagreeable habit of preferring social reality to ideological stereotyping. As something to be valued they have now largely disappeared from Tory rhetoric, as has the notion of the Big Society itself.

Will the new welfare legislation have any effect on the welfare dependency it’s supposed to bring to an end? In practical terms it certainly won’t, largely because that dependency simply doesn’t exist in the way that the Tories claim. Will it work as a form of electoral mobilisation? Almost certainly. The strategy of turning the working class against itself is not new – it was practised by the Conservatives in the 1930s with some success. It exploits a tendency in working-class life for people to distrust their own class more than they distrust the people above them. Hitherto, negative stereotyping has worked. The differences between what people think about the welfare state and its reality are very striking. They believe that 41 per cent of the welfare budget is spent on the unemployed: the figure is actually 3 per cent. They believe that 27 per cent of the welfare budget is claimed fraudulently: the government estimates it is 0.7 per cent. Immigrants are actually big net contributors to the country’s finances and are less likely to claim housing or unemployment benefit. What characterises the welfare state, in fact, is the increasing dependence of working households on child and housing benefit. In December 2011, for instance, a quarter of in-work households in rented accommodation were dependent on housing benefit. That figure will almost certainly continue to rise. The great bulk of welfare payment goes to those in work, not to the scroungers and the feckless, and this points to the increasingly straitened condition of the strivers.

To set against the stereotype of the dole scrounger there is now the stereotype of the parasitic banker: the scrounger who is primarily responsible for the mess we’re in, but who has escaped scot-free. And it is more than a stereotype. A dozen bankers have done more damage to the British economy than any number of benefit cheats could. And it is those who rely on welfare who are now paying the penalty for the bankers’ misdeeds.

At the moment it is uncertain how Labour is going to respond to these reforms. The party recognises that much of the public has a crude conception of the welfare state and is largely unaware of the extent to which it is also dependent on it; aware too that circumstances and the Tory media have done a pretty good job in demonising the imaginary scrounger class. But, though some would like to, Labour cannot simply acquiesce in what the Tories have done. That would be to concede the game to Cameron and Osborne without gaining any electoral advantage. The party should also recognise that what the Tories have done, as well as being very bad economics, is morally unacceptable. How far the Labour Party is prepared to exploit popular hostility to the bankers or to the ‘rich’ generally remains to be seen. Since they are just as unpopular as benefit cheats this has many quasi-demagogic possibilities. The problem for Labour is that the worst of the bankers’ behaviour occurred when it was in office, that Labour was complicit and to some extent encouraged it. Nonetheless, the party should hold its nerve. Reversing all the welfare cuts is now politically impossible, but a promise to reverse the most damaging and unfair is not. Labour could also look at the politics of taxation. The loss to the Inland Revenue from tax avoidance or evasion is enormous and greatly exceeds any conceivable losses to the Treasury from welfare fraud. The public might dislike scroungers but it also thinks that the rich are undertaxed. Merely to look the other way, or to offer a hardly less punitive alternative will win Labour no elections. I suspect, however, that in the short term fudge is what we will get, since in the short term fudge looks the safer option.

As for the Tories and the Lib Dems, it’s nice to have stereotypes confirmed. The Tories are still the nasty party – in fact the even nastier party – and Duncan Smith, despite rumours to the contrary, remains the unimaginative reactionary he always was. The Lib Dems have again covered themselves in shame, especially those MPs who represent working-class seats, and even more those who represent working-class seats in London (Simon Hughes, for example), where the cuts will do the most social damage. Labour should keep them in mind as well as the bankers.