Labour may cut benefit for public school pupils

Independent school parents could lose child benefit when their children reach the age of 16, under plans being studied by Labour.

The move could provide a breakthrough in the long-running Shadow Cabinet dispute over how to trim the bill for child benefit for those between the ages of 16 and 18.

Labour sources said last week that the removal of Chris Smith from the Shadow Social Security portfolio might speed a resolution of the crisis. Mr Smith, who swapped jobs with Harriet Harman at Health, had been fighting plans by the Shadow Chancellor, Gordon Brown, to end the universal distribution of the benefit to 16 to 18-year-olds who stay at school.

Making independent school parents ineligible could provide a simple and administratively cheap way of restricting the child benefit bill, while protecting those in most need.

However, the Opposition is sensitive to the idea that the move might be politically unpopular, particularly among middle-class voters in metropolitan areas who have opted out of the state system. Earlier models for reforming the system revolved around the abolition of post-16 child benefit, and the creation of an education allowance to be given either to young students or to their parents.

But the need to protect the poorest recipients has dogged the proposals. The main options now include keeping the status quo - rejected by Mr Brown - means-testing benefit recipients, or using the tax system to reclaim some of the money.

Means-testing would be administratively complex and therefore costly. Use of the tax system is also troublesome because husbands and wives are taxed separately. That means that a non-working man or woman whose spouse is a millionaire would still be eligible for the benefit. It would also validate the Conservative claims that Labour's proposals are tantamount to a tax increase.

One way round this problem is to reduce the categories of those eligible for the post-16 benefit. At present the Department of Social Security sends parents a form when their child reaches the age of 16, asking whether they intend to continue in full-time education.

If they do, they are eligible for the benefit. However, that process could be amended so that parents have to answer separate questions to gain eligibility. One of these could be whether or not children attend a fee-paying school.

Mr Brown, who won the backing of Labour's parliamentary party last week for his review of the benefit, wants to spend the money raised on improving the education prospects of disadvantaged 16 to 18-year-olds.

But the dispute over child benefit has been one of the most politically explosive issues on the Labour side in recent months. Mr Brown was criticised by some Shadow Cabinet colleagues two months ago when he floated the idea of scrapping child benefit to provide extra cash to help youngsters to stay on at school. He was attacked over lack of consultation.

The Tories seized on the confusion and have dubbed the plan a "child tax'' proposal.