Brown's jobs plan derided as fraud aid

A senior Tory claimed last night that ministers have been warned that social security fraud on the Government's new welfare to work programme could could blow a massive hole in the Chancellor's Budget calculations.

Iain Duncan Smith, Tory spokesman on social security, claimed that ministers have been warned that the plans, acentrepiece of the Budget, could lead to increased fraud amounting to pounds 300m.

The Chancellor, Gordon Brown, will announce that pounds 750m is to be spent over four years on welfare to work, but Mr Duncan Smith said ministers had been told the system of paying employers to take on young people out of work was open to fraud.

Mr Duncan Smith wrote to Frank Field, the social security minister, challenging him over the figures after he brushed aside the claims in the Commons. "Employer subsidies offer a clear opportunity for collusion and fraud," he said.

He also raised doubts that Mr Brown will be able to secure the pounds 4.7bn savings on social security fraud which Kenneth Clarke, the former Chancellor, included in his Budget figures to balance the books. The large sums Mr Clarke relied on saving by tackling social security fraud may have increased the pressure on Mr Brown to raise taxes in his Budget.

Ministers said the Budget would be less harsh than many were predicting, and that the Chancellor would produce a balanced package in spite of the reports that he is poised to cut mortgage interest tax relief worth pounds 30 a month to those on average earnings and increase stamp duty on house buying. The pain will be offset by schemes to help the unemployed back to work.

Peter Lilley, shadow Chancellor, said the "nods and winks" about the impact of the Budget on the middle classes were "testing the water for a betrayal of trust" by Labour. He said Mr Brown had stated before the election that there were "no public expenditure commitments which require extra taxes" but there are clear signs at Westminster that Mr Brown is preparing to blame Mr Clarke for leaving a "black hole" in the accounts.

Mr Brown's wide-ranging package will hit drivers and smokers but the underlying concern is over the rising value of the pound, driven by the speculation surrounding the creation of a single currency with a soft Euro. There are fears that the Bank of England may increase interest rates next week, threatening a further rise in the pound, unless Mr Brown convinces the City that he will damp down inflation.

Tony Blair has been urged to deflate the pound by declaring an intention for early entry to the Euro, but one Labour MP was told by Labour leadership sources: "You must be joking".

Meanwhile, the Secretary of State for Social Security, Harriet Harman, gave a clear signal that she will announce plans to modernise the payments of the benefit system. Ministers want to bring the payment of benefits into "one stop" shops with those searching for work.

Queuing, removed from life in the Eastern Bloc, was still a fact of life in Britain's benefits offices, Ms Harman protested. She told the Commons the Government would stay inside the departmental budgets of the previous administration, but the priorities would be different. "We are determined to modernise the social security system," she said.