George Osborne wants two-year freeze in state benefits

Lib Dems face veto decision as Treasury says welfare payments rising faster than wages

George Osborne is pressing for state benefits to be frozen for two years as he struggles to find a further £10bn of cuts in the welfare budget.

The move provoked controversy yesterday amid warnings that such a policy would harm the most vulnerable. The Treasury argues that benefits, which increased by 5.2 per cent in April in line with inflation, have been rising faster than wages, reducing the incentive for the jobless to find work.

Although Nick Clegg blocked a similar move by the Chancellor a year ago, there are signs that the Liberal Democrats might not repeat their veto this year – provided the proposed freeze was part of a wider package of measures they judged fair.

A negotiation between the two Coalition parties will take place before the Chancellor's Autumn Statement on 5 December, during which the Liberal Democrats will press for a wealth tax or mansion tax on homes worth more than £2m.

Whitehall insiders dismissed suggestions that benefits would be linked to earnings instead of inflation on a permanent basis. That could cost the Treasury more, since the independent Office for Budgetary Responsibility (OBR) predicts that earnings will start to rise faster than inflation from next year.

Any freeze would not cover the basic state pension and it is unlikely to include disability payments in the wake of the Paralympics. But officials estimate that freezing 90 per cent of benefits could save £7bn in one year. They say that, if benefits had been linked to average earnings rather than inflation since 2008-09, the Government would have saved £14bn.

Downing Street and senior Liberal Democrat sources refused to rule out a freeze on some benefits. No 10 said the decision on raising payments in line with inflation was made on an annual basis, usually in December, for the following year. "On some occasions thresholds are frozen or entitlements frozen," a spokesman said.

Gavin Kelly, chief executive of the Resolution Foundation think tank which specialises in the "squeezed middle", said: "Freezing working-age benefits would not only increase overall poverty; it would also increase poverty among those in work. The idea that linking benefits to earnings in a few years time will save money is very far-fetched. So any linking of benefits to earnings in the next parliament would amount to a significant increase in welfare spending compared to existing plans – and I doubt that is what the Treasury is planning".

Paul Jenkins, chief executive of the Rethink Mental Illness charity, urged the Government to "think again" before freezing benefits. He said: "This will come as yet another blow for many vulnerable people who are already struggling and who feel they are being unfairly targeted by cuts. People with serious mental illnesses are being attacked from all sides as cuts to social care, the NHS and benefits all begin to bite at once."

Dame Anne Begg, the Labour chairman of the Commons Work and Pensions Select Committee, said: "More than 50 per cent of benefits go to people in work but on the low pay end. So given the double whammy of lower wages and lower benefits they are going to be hurt badly."

Liam Byrne, the shadow Work and Pensions Secretary, said: "If David Cameron and George Osborne want to fill the big hole in public finances caused by the failure of their economic plan, they should start by looking at their tax cut for millionaires."

Taking the axe to welfare: Policy proposals unpicked

State benefits

Treasury regrets 5.2 per cent rise in benefits which took effect in April and wants to freeze them for next two years. Could happen but unlikely to cover disability benefits or basic state pension.

Basic state pension

Iain Duncan Smith, the Work and Pensions Secretary, plans a flat rate pension of £140 a week – more generous than the current basic £107.45 a week and average £124 a week including top-ups. But David Cameron is said to be getting cold feet about losing the "grey vote" since many existing pensioners could lose out.

Universal credit

Duncan Smith's idea to streamline system by merging working age benefits including jobseeker's allowance, housing benefit and tax credits. Treasury nervous about cost and whether government IT systems will cope. Duncan Smith insists scheme is "on track, on budget".

Child benefit

Already frozen for three years and restricted for families who have one taxpayer on the 40p rate from next January. George Osborne already forced into partial retreat; only people on more than £60,000 a year will lose child benefit entirely.

Start your day with The Independent, sign up for daily news emails
News
Young Winstone: His ‘tough-guy’ image is a misconception
people
Sport
Adnan Januzaj and Gareth Bale
footballManchester United set to loan out Januzaj to make room for Bale - if a move for the Welshman firms up
Arts and Entertainment
Ellie Levenson’s The Election book demystifies politics for children
bookNew children's book primes the next generation for politics
News
Outspoken: Alexander Fury, John Rentoul, Ellen E Jones and Katy Guest
newsFrom the Scottish referendum to the Ice Bucket Challenge, our writers voice their opinions
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
i100
Sport
Yaya Sanogo, Mats Hummels, Troy Deeney and Adnan Januzaj
footballMost Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
Arts and Entertainment
L to R: Hawkeye (Jeremy Renner), Captain America (Chris Evans) & Black Widow (Scarlett Johansson) in Avengers Assemble
film
News
Nigel Farage celebrates with a pint after early local election results in the Hoy and Helmet pub in South Benfleet in Essex
peopleHe has shaped British politics 'for good or ill'
Arts and Entertainment
Pharrell Williams' “Happy” was the most searched-for song lyric of 2014
musicThe power of song never greater, according to our internet searches
Sport
Tim Sherwood raises his hand after the 1-0 victory over Stoke
footballFormer Tottenham boss leads list of candidates to replace Neil Warnock
Arts and Entertainment
Sink the Pink's 2013 New Year's Eve party
musicFour of Britain's top DJs give their verdict on how to party into 2015
Voices
Strictly Come Dancing was watched by 6.9m viewers
voicesIt has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
Arts and Entertainment
Roffey says: 'All of us carry shame and taboo around about our sexuality. But I was determined not to let shame stop me writing my memoir.'
books
News
i100
News
Caplan says of Jacobs: 'She is a very collaborative director, and gives actors a lot of freedom. She makes things happen.'
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Ashdown Group: Senior Marketing Executive- City of London, Old Street

£40000 - £43000 per annum + benefits: Ashdown Group: Senior Marketing Executiv...

Ashdown Group: Marketing Manager

£40000 - £43000 per annum + benefits: Ashdown Group: An international organisa...

Ashdown Group: Internal Recruiter -Rugby, Warwickshire

£25000 - £30000 per annum: Ashdown Group: Internal Recruiter -Rugby, Warwicksh...

Day In a Page

War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?
Finally, a diet that works: Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced

Finally, a diet that works

Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced
Say it with... lyrics: The power of song was never greater, according to our internet searches

Say it with... lyrics

The power of song was never greater, according to our internet searches
Professor Danielle George: On a mission to bring back the art of 'thinkering'

The joys of 'thinkering'

Professor Danielle George on why we have to nurture tomorrow's scientists today
Monique Roffey: The author on father figures, the nation's narcissism and New Year reflections

Monique Roffey interview

The author on father figures, the nation's narcissism and New Year reflections
Introducing my anti-heroes of 2014

Introducing my anti-heroes of 2014

Their outrageousness and originality makes the world a bit more interesting, says Ellen E Jones
DJ Taylor: Good taste? It's all a matter of timing...

Good taste? It's all a matter of timing...

It has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
Olivia Jacobs & Ben Caplan: 'Ben thought the play was called 'Christian Love'. It was 'Christie in Love' - about a necrophiliac serial killer'

How we met

Olivia Jacobs and Ben Caplan
Bill Granger recipes: Our chef's breakfasts will revitalise you in time for the New Year

Bill Granger's healthy breakfasts

Our chef's healthy recipes are perfect if you've overindulged during the festive season
Transfer guide: From Arsenal to West Ham - what does your club need in the January transfer window?

Who does your club need in the transfer window?

Most Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
The Last Word: From aliens at FA to yak’s milk in the Tour, here’s to 2015

Michael Calvin's Last Word

From aliens at FA to yak’s milk in the Tour, here’s to 2015