Labour campaigns against benefit cuts: Warning of reduced spending on housing and sickness. Colin Brown reports and unemployment

CUTS IN the welfare state will be targeted in a Labour autumn offensive on the Government, launched tomorrow by Gordon Brown, the Labour spokesman on the economy.

Mr Brown said last night that proposed cuts in housing benefit, disclosed yesterday in the Independent, would be 'another attack on the pensioners'. Using the slogan 'You can't trust the Tories', Labour leaders will attempt to capitalise on opinion poll findings that the public feel betrayed under John Major's leadership.

Mr Brown will warn of cuts in other parts of the welfare state, including sickness benefit, for which companies could be asked to pay more of the burden, and unemployment benefit, which ministers want to cut from 12 months to 6 months.

The housing charity Shelter last night warned the Government that it risked increasing the cost of homelessness with cuts in the pounds 7bn budget for housing benefit.

Ministers are considering cutting the numbers eligible for housing benefit by halving the limit for savings from pounds 16,000 to pounds 8,000 in line with income support; lowering the earnings limit, where claimants lose benefit (known as 'the taper'); and penalising local authorities, which administer the system, for failing to tackle fraud and abuses.

Shelter criticised the confusion over benefit payments, and called for a thorough review of the system, but opposed sharpening the tapers.

'We are creating poverty ghettos of people who cannot afford to go to work because the housing taper is too sharp. Making it sharper is absurd,' a spokeswoman for Shelter said.

The Department of Social Security said the main reason for the rise in the cost of housing benefit was the rise in unemployment caused by the recession. But the Select Committee on the Environment found that housing benefit may inhibit claimants from leaving the dole when the recession ends.

'The present housing benefit taper of 65 per cent contributes to a maximum effective rate of tax of up to 97p in each pound of extra income and provides a consequent disincentive to work. The effect is commonly known as the poverty trap or earnings trap, sometimes as the benefit trap,' the committee said.

The poverty trap has been deepened by the switch of government resources from capital spending through housing association grants (HAG) to personal subsidies through benefits, such as housing benefit.

David Willetts, the Tory MP for Havant and former head of the Centre for Policy Studies, said: 'We have got into a position where we are giving help to low income tenants at two different stages, first as a subsidy to the Housing Corporation and housing associations, and secondly as a subsidy to the tenant through housing benefit. There is a case for drawing back on one of these two.'

However, John Major knows the difficulty of doing so. He was the Chief Secretary to the Treasury in charge of public spending when Margaret (now Baroness) Thatcher was forced to retreat over an attempt to restrict eligibility to those with savings of pounds 2,000 or less. It was raised to pounds 8,000 at a cost of pounds 100m and John Moore, then Secretary of State for Social Security, was later sacked.