Spending squeeze may hit invalids

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The Independent Online
Invalidity and housing benefits will be among the areas threatened by cuts this week as Norman Lamont, Chancellor of the Exchequer, fights to reassert his authority in the City by taking personal charge of the battle to reduce spending programmes.

Cuts in social security benefits that are not means-tested and are not covered by specific government pledges now look certain. Cabinet ministers are trying to keep reductions in capital spending to the minimum in the package of cuts that will be unveiled in next month's autumn statement.

Ministers remain deadlocked on ways of keeping to the pounds 244.5bn target for public expenditure agreed in July. Senior ministers are clearing their diaries for a series of meetings, beginning on Tuesday, of the public spending Cabinet committee ED(X).

The public spending crunch comes in a week that will also be dominated by preparations for the Birmingham EC summit on Friday. With a 'paving debate' on Maastricht due in the Commons next month, the British presidency will press summit partners to concentrate on a deal to limit the European Commission's decision-making power.

With ministers still split on the critical issue of whether Britain should rejoin the exchange rate mechanism in the long term, Mr Lamont is expected to be reticent when he is questioned by the Commons Treasury Select Committee tomorrow. He will attempt to flesh out details of monetary policy when he addresses the Mansion House banquet on 29 October.

Peter Lilley, the Secretary of State for Social Security, is fighting to ensure that the safety net for the poorest people on income support is protected, along with pensions and child benefit. But invalidity benefit, which costs pounds 5.5bn a year, is among those paid to people at all income levels and not covered by any specific manifesto pledges. Cuts in these areas may claw back pounds 250m.

Payments to invalids could be taxed, thus ensuring that savings are at the expense of those who are relatively well-off; the money that goes to the poorest would remain unchanged. Alternatively, payments could be restricted to those below the age of 65. A third alternative is to freeze the benefit instead of raising it in line with inflation next year. This could be accompanied by a pledge to restore its value later.

Other social security payments in line for possible cuts include housing benefit. Some benefit is paid to all claimants with savings of less than pounds 16,000 and that threshold could be reduced.

Proposals to restrict unemployment benefit to six months instead of 12 have not been dropped but are regarded as politically dangerous while unemployment is still rising sharply. Another big increase is expected this week.

Strong hints that the Treasury would like to bring total public spending below the pounds 244.5bn already agreed will be fiercely resisted despite the fillip it would give the Chancellor in the financial markets. One senior Cabinet minister said last week that it would be preposterous to cut the total further when the Government already faces a political storm over cuts.

Some Cabinet ministers are still pressing for big cuts in defence programmes, beyond the almost certainly doomed Tactical Air to Surface Missile (costing pounds 3bn to completion). Michael Howard, the Secretary of State for the Environment, is fighting for extra funds to cushion the introduction ofcouncil tax. Ministers, braced for public sector strikes, will also consider ways of limiting public sector pay increases to less than 2 per cent.

One sliver of comfort for the Cabinet committee was John Major's announcement in his conference speech on Friday that a 'fresh look' would be taken on partnership on infrastructure projects between the private and public sectors. This means that the Treasury has agreed to more flexibility over private sector investment and could herald the building of more toll roads.

The Government faces a further storm in the next fortnight when it announces the closure of 30 coal mines, and the loss of 30,000 miners' jobs over two years. The miners will receive redundancy payments of up to pounds 37,000 each.

Meanwhile, a senior EC source suggested that Mr Major is likely to get little political assistance from the Birmingham summit on Friday. The source said: 'Everyone is expecting something, but if the heads of government have nothing to say, it could backfire.'