George Osborne faces a rebellion within the Coalition over his pledge that no family should get more in benefits than the average wage.
A Liberal Democrat minister has become the first member of the Government to openly question Mr Osborne’s plan to cap benefits at £26,000 for workless families.
Sarah Teather, the Families Minister, said she was “extremely worried” about the cap which will apply to all households where no-one works from 2013. Her concerns are known to be privately shared by a number of Conservative ministers as well.
Lib Dem sources yesterday predicted that unless the Treasury backed down there would be a rebellion against the Government’s Welfare Bill when it is debated in the House of Lords.
“I can’t see us voting for it as things currently stand,” said one senior Lib Dem figure in the Lords. “It is not just us. There are powerful people in the Conservative Party who are also opposed to this.”
But Mr Osborne is said to be standing firm and insisting there should be no compromise on his pledge which received a rapturous reception when he announced it at the Conservative Party conference.
“We are not going to budge on this,” said one ally of the Chancellor. “It is popular and right. Ninety per cent of the public agree with the cap.”
Under the proposals put forward by Mr Osborne no family – no matter how large – would be entitled to benefits of more than £26,000 when the payment system is simplified and unified through the Welfare Bill.
But opponents say the cap is simplistic and doesn’t take into account the high cost of housing in London. Campaigners estimate that up to 50,000 families could be forced out of their homes by the change. They also point out that families who earn the average wage of £26,000 a year can also claim child benefit whereas child benefit is included in the figure for those on benefits.
“We are not opposed to the principle that families should not get more in benefits that the average wage – but there are significant complications in how you calculate the average wage,” said the Liberal Democrat peer Lord German. “For example the average wage in London is much higher than the average wage in the Welsh valleys.”
Earlier this month a leaked email revealed that David Cameron had been warned by Eric Pickles, the Community Secretary, that 40,000 families would be made homeless unless the policy was changed.
It suggested the policy could even be counter-productive as homeless families would actually increase the burden on the taxpayer.
Answering questions at the Family and Parenting Institute Ms Teather said: “The theory behind having a cap is that we know a lot of families at the moment are effectively trapped by work not paying.
“So in a situation where if you can gain more in benefit than you can in work, it can be very difficult to make that decision to go back to work. But if you are asking me if I am worried about the level that the cap is set at, yes I am extremely worried. We need to get the detail right.”
Officials in the Department of Work and Pensions are thought to be examining proposals that would provide “transitional” protection but this has not got the agreement of the Treasury.
The Liberal Democrat MP Jenny Willnott said: “Any changes are obviously complicated and have to be worked through – but the principle is important.”