Budget will stop child benefit for 16-18 year olds

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Gordon Brown, the Chancellor, will signal the go ahead for the replacement of child benefit for 16-18 year olds with an educational allowance as part of a radical welfare-to-work strategy to be unveiled in his first Budget.

Mr Brown, who will today seek to put jobs at the centre of the European agenda at a meeting of European finance ministers, is planning a wide- ranging package of measures to get young people back to work as part of next month's Budget.

A review of the detailed proposals for the education allowance, including the amount and eligibility, is being carried out by Baroness Blackstone, but senior Cabinet sources said Mr Brown will confirm the plans in principle.

There was speculation that the proposals for replacing child benefit had been abandoned, after they appeared to have been watered down to a review in the Labour election manifesto.

But sources close to the Chancellor last night denied any change of the policy. "There is a commitment and it is incorrect to say it has been dropped," said the source.

The Budget is set to follow in the radical, reforming pattern of the first weeks of the Blair administration. The welfare-to-work plans will be financed largely by the pounds 5bn windfall profits tax on the privatised utilities.

Scrapping child benefit for 16- to 18-year-olds could release an estimated pounds 600m to pay for education allowances for children from poorer families to continue with their education beyond the existing school leaving age.

The welfare to education review, produced last September by Mr Brown with Harriet Harman, now the Social Security Secretary, and David Blunkett, the Employment and Education Secretary, said: "The current system of child benefit after 16 does not work. It is not universal and never has been ... The mother of an unemployed 16-year-old loses it. The mother of an Etonian sixth-former in a millionaire family receives pounds 1,500 over three years."

Mr Blunkett was wary about scrapping part of child benefit, which goes to around 12.5 million children and nearly seven million families, but is fully behind the moves to offer children allowances to stay on in some form of education or training.

As part of preparing children for work, Education ministers this week will tell schools to pay more attention to literacy and numeracy. It may mean cutting class projects and trendy teaching methods, to concentrate on the three "Rs" of reading, writing and arithmetic, pending the outcome of a curriculum review.

Treasury sources refused to confirm weekend speculation that Mr Brown had decided to keep mortgage interest tax relief (Miras), worth pounds 27 a month to the average householder on the maximum relief of 15 per cent on the first pounds 30,000 of a mortgage. Scrapping it would save around pounds 3bn and would remove the unfair advantage over those renting property, but it would be a heavy blow to "middle England" voters, who put their trust in Mr Blair at the election, particularly after two hikes in interest rates.

Mr Blair promised no increases in the tax rates, but Mr Brown is expected to raise more taxes in the Budget through allowances, and closing loopholes on business, with "green" car taxes on polluting "gas guzzlers", company cars, and closing company tax loopholes.

Mr Blair this week will take a unique opportunity to explain the Government's plans for flexible working policies in Europe by addressing the board of the Ford motor company in a London hotel. It will be the first time that the US executives as a group have been addressed by a Prime Minister.