Forget dinosaurs and Roman orgies. If a Time Machine were invented tomorrow, we should just whirl back 80 years and bang a lot of official heads together. Their errors haunt us still: in the realm of emotional politics Britain is still paying a heavy price for misjudgments and cruelties in the years between the wars. OK, the Establishment was in shock, grieving for the war dead and wobblingly insecure about the loss of Edwardian certainties and reliable valets. But that is no excuse. Get back there, roll up the sleeves, give them a shake.

The damage done in the 1930s rings down the decades. It prevents sensible husbanding of public resources, muzzles plain speaking and ruined the Labour Party with years of sentimental infighting. Seventy years on, two words are still sabotaging the social security system: Means Test. If those two words convey nothing, try them out on your granny and stand well back. If you have no 1930s working-class adults handy, here is a brief summary.

In 1918 postwar relief for unemployed ex-soldiers and civilians was a comparatively generous “non-contributory donation”. It seemed that the degrading days of the Poor Law were over, and the nation was at last properly respectful of its workers and former cannon fodder. But through the 1920s conditions of unemployment benefit got narrower. Then in 1930 the Depression threw government into a fiscal panic, and the poor got the sharp end with the Family Means Test.

You had to prove just how poor you were, in intimate domestic detail. It imposed form-filling, impertinent questions, and regular, shamingly visible, visits from investigators licensed to peer into your cooking-pots, rule that one chair per person was enough, and order you to sell your spare blankets. John Craig, an apprentice fitter, recalled: “You got so much off the labour exchange, but they kept control, and following you about would come to your house. Mother had a lovely big organ in the house. The inspector says ‘Well, you don't get any more money for four weeks until you sell that organ'. And my father belted him down the stairs.” It broke up families into homelessness: adult children lost all benefits if anybody in the house earned 31 shillings a week, so they had to move out.

From 1934, 190,000 unemployed men were made to attend “training camps” simply because there were no jobs. One contemporary interviewee asked: “How could anyone expect an unemployed man to do physical jerks on 15s a week, or play ping pong, while his wife was sitting at home before a half-empty grate with only margarine to eat?” This humiliation visited on a formerly proud working class by the means test led to the Jarrow March: which demanded, let me remind you, not handouts but work.

The memory of that mass humiliation has hung over politics ever since, colouring everything. There is a parallel with the way that the memory of callous mine-owners - shredding incriminating paperwork after disasters such as Gresford - stopped subsequent Labour governments from daring to stand up to less reasonable miners' demands. Well, the miners were finally (and brutally) defeated. But thanks to the flatfooted regime of the 1930s, means testing remains anathema.

It leads to countless illogicalities, from free bus passes for elderly millionaires to child benefit for yummy-mummies wearing Prada. I dare not compute how many billions of public money has been wasted in paying the latter handout to women who absolutely do not need it: those in affluent families or highly paid jobs. In Australia child benefit is sensibly linked to the income tax system. In Britain any such suggestion is met with fury, usually from left-liberal women columnists earning four times the national average salary. They cite the horror of means testing as if terrified that the investigator might be round any minute to confiscate the baby's spare bibs.

The same squeamishness torpedoes sensible reforms like imposing modest “hotel charges” on richer hospital patients. That would have improved our dangerously appalling hospital food for everyone, and pumped millions into the NHS. But no: overboiled cabbage must be free at the point of delivery, with no evil means testing. The shame of the 1930s has crippled and blinded social security policymakers for seven decades, and the resulting financial anxiety as the system roars out of control has, paradoxically, made it less humane and more inflexible for those who really need it. Ask any brave chemotherapy patient who tries to do a bit of freelance work on the good days without losing a whole month's maintenance.

Why bring out this rant right now? Because the Government has floated the idea that council tenancies should not be secure for life. People in social housing would have fixed-term contracts, with regular reviews, so that when their incomes rise they could either buy some equity or pay more rent, thus freeing money for more social housing. At the moment, public tenants can usually stay put, at low protected rents, however rich they get. Frank Dobson became an MP and a Cabinet minister without losing his council flat, and Lee Jasper, Ken Livingstone's aide, was reported to be living in social housing while earning £117,000 a year. Others took advantage of the right-to-buy scheme, then promptly moved in with a partner and sold the spare flat at a big profit on a booming market.

Meanwhile people in real need, earning little or nothing, spend years on waiting lists or compel desperate councils to waste public money on high private rents. But when government and the Chartered Institute of Housing cautiously talk about reviewing council tenancies or treating subsidised housing as a stepping-stone for some, there is an outcry. It's means testing! Aaaagh! One paper wailed that it would “penalise those who try to better their circumstances”. But nobody is suggesting a disproportionate charge: and the system always “penalises” everybody who earns a bit more. It's called income tax.

A visiting Martian, unaware of the poisoned historical hinterland, would assume that rational sharing of a scarce resource was perfectly sensible. Even a proper Marxist, surveying the four million people on the waiting lists and the affluent Jaspers and Dobsons blocking the way, would murmur: “From each according to his ability, to each according to his need.” But a liberal Briton, haunted by the officials who peered into the cooking-pots of the miserable 1930s, can only wail and emote. Bring on that Time Machine. Take a big stick with you.

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