George Osborne wants two-year freeze in state benefits

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George Osborne wants two-year
freeze in state benefits
Lib Dems face veto decision as Treasury says welfare
payments rising faster than wages

George [taxpayers funded those DVDs] Osborne is pressing for
state benefits to be frozen for two years as he struggles to find
a further £10bn of cuts in the welfare budget.

The move provoked controversy yesterday amid warnings that
such a policy would harm the most vulnerable. The Treasury
argues that benefits, which increased by 5.2 per cent in April
in line with inflation, have been rising faster than wages,
reducing the incentive for the jobless to find work.

Although Nick Clegg blocked a similar move by the Chancellor
a year ago, there are signs that the Liberal Democrats might
not repeat their veto this year – provided the proposed freeze
was part of a wider package of measures they judged fair.

A negotiation between the two Coalition parties will take place
before the Chancellor's Autumn Statement on 5 December,
during which the Liberal Democrats will press for a wealth tax
or mansion tax on homes worth more than £2m.

Whitehall insiders dismissed suggestions that benefits would
be linked to earnings instead of inflation on a permanent
basis. That could cost the Treasury more, since the
independent Office for Budgetary Responsibility (OBR)
predicts that earnings will start to rise faster than inflation
from next year.

Any freeze would not cover the basic state pension and it is
unlikely to include disability payments in the wake of the
Paralympics. But officials estimate that freezing 90 per cent of
benefits could save £7bn in one year. They say that, if benefits
had been linked to average earnings rather than inflation since
2008-09, the Government would have saved £14bn.

Downing Street and senior Liberal Democrat sources refused to rule out a freeze on some benefits. No 10 said the
decision on raising payments in line with inflation was made on an annual basis, usually in December, for the
following year. "On some occasions thresholds are frozen or entitlements frozen," a spokesman said.
Gavin Kelly, chief executive of the Resolution Foundation think tank which specialises in the "squeezed middle", said:
"Freezing working-age benefits would not only increase overall poverty; it would also increase poverty among those in
work. The idea that linking benefits to earnings in a few years time will save money is very far-fetched. So any linking
of benefits to earnings in the next parliament would amount to a significant increase in welfare spending compared to
existing plans – and I doubt that is what the Treasury is planning".

Paul Jenkins, chief executive of the Rethink Mental Illness charity, urged the Government to "think again" before
freezing benefits. He said: "This will come as yet another blow for many vulnerable people who are already struggling
and who feel they are being unfairly targeted by cuts. People with serious mental illnesses are being attacked from all
sides as cuts to social care, the NHS and benefits all begin to bite at once."

Dame Anne Begg, the Labour chairman of the Commons Work and Pensions Select Committee, said: "More than 50
per cent of benefits go to people in work but on the low pay end. So given the double whammy of lower wages and
lower benefits they are going to be hurt badly."

Liam Byrne, the shadow Work and Pensions Secretary, said: "If David Cameron and George Osborne want to fill the
big hole in public finances caused by the failure of their economic plan, they should start by looking at their tax cut for

Taking the axe to welfare: Policy proposals unpicked

State benefits

Treasury regrets 5.2 per cent rise in benefits which took effect in April and wants to freeze them for next two years.
Could happen but unlikely to cover disability benefits or basic state pension.

Basic state pension

Iain Duncan Smith, the Work and Pensions Secretary, plans a flat rate pension of £140 a week – more generous than
the current basic £107.45 a week and average £124 a week including top-ups. But David Cameron is said to be getting
cold feet about losing the "grey vote" since many existing pensioners could lose out.

Universal credit

Duncan Smith's idea to streamline system by merging working age benefits including jobseeker's allowance, housing
benefit and tax credits. Treasury nervous about cost and whether government IT systems will cope. Duncan Smith
insists scheme is "on track, on budget".

Child benefit

Already frozen for three years and restricted for families who have one taxpayer on the 40p rate from next January.
George Osborne already forced into partial retreat; only people on more than £60,000 a year will lose child benefit

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