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
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
Life and Style
Suited and booted in the Lanvin show at the Paris menswear collections
fashionParis Fashion Week
Arts and Entertainment
arts + ents
News
i100
Arts and Entertainment
Kara Tointon and Jeremy Piven star in Mr Selfridge
tvActress Kara Tointon on what to expect from Series 3
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
News
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

Ashdown Group: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Recruitment Genius: Electronics Engineers / Senior Electronics Engineers

£25000 - £55000 per annum: Recruitment Genius: Based in Henley-on-Thames, this...

Austen Lloyd: Private Client Solicitor - Oxford

Excellent Salary : Austen Lloyd: OXFORD - REGIONAL FIRM - An excellent opportu...

Day In a Page

Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project