I think you are looking back through rose-tinted glasses!
Council houses were rented to the tenants, they weren't given them free. There were very limited circumstances in which discounts were given. Most tenants worked to pay their rent.
The background to the Tory sell off was the increasing cost of maintenance and the lack of general care for properties by the tenants, alongside rising crime levels on council estates. The rising costs were too expensive and it was thought that principle of 'the tragedy of the commons' was part of the problem. By giving tenants ownership the Tories hoped to improve the areas for everyone and intended to continue to build new council properties. Obviously that failed as the better tenants bought and the worst were left in poor conditions. The problem was that the Blair Government, that oversaw the largest sell-off, prevented local authorities from using the windfall to build more council houses.
In the 1970s the top rate of income tax was 83% on an income above £20,000 a year. National insurance was charged on top of that. Investment income was subject to taxes up to 98%. The 1970s suffered from what was known as the 'brain drain' as high-income earners moved abroad. The 1970s also saw the creation of the offshore tax havens as more and more people tried to find ways to escape the UKs horrendous taxes.
The Bank of England base rate hit 17% in 1979, the highest in UK history, as the government battled inflation above 20%. We complain about cost of living now, but inflation is nowhere near what is was in the 1970s.
The Bank Rate stayed in double figures for a long time before finally falling from 17% to 9.13% by 2 November 1982 before rising to 10% later that month making home ownership expensive. Many homeowners in this era saw their monthly payments double or triple with little warning. Variable rate mortgages were the norm, fixed-rate products barely existed. MIRAS relief offered a reduction of 25% (basic tax rate) on the interest so still left home owners paying much more in interest than they do now. Edited to say that MIRAS was a tax relief not a benefit.
Widow's pension were largely based on the deceased husband's contributions - it was necessary back then as very few women had made their own contributions. Also, there were a lot of war widows of pension age in the 1970s and I don't think anyone could begrudge them a pension!
The history of the benefits system is interesting. It has been through several major changes. The BBC History pages (now archived) includes this:
"Prior to WW2, when welfare was run by friendly societies and mutually owned organisations few questioned the fact that welfare affected how people behaved. Welfare was not simply strictly policed; the range of benefits fully recognised the danger that some people would claim benefit to which they were not entitled if the regime was slack. Welfare was seen not merely as a means of meeting a need, but by its organisation, and the means by its delivery, it was conceived as a tool for building good character.
The biblical view of human nature - its fallen status, yet conceived to be redeemed - was lost sight of in left-wing intellectual circles by the 1960s. Welfare was by them seen primarily as an act of altruism and this paternalistic view was advanced behind the cover of politically correct statements, so much so that even the Right lost the confidence to mouth, let alone act on, the broader, age-old understanding of mankind.
The resulting paralysis of both will and mind resulted in little concern for how different types of welfare (insurance or means-tested) affected behaviour; and to raise the question of fraud was to be automatically deemed politically unbalanced. 'Thinking the unthinkable' was the task for Labour's final years in opposition before 1997, and was part of the strategy of making Labour electable. It was never meant to be an activity undertaken in government."