The Government was yesterday accused of a further "lurch to the right" after it had emerged that Peter Lilley, Secretary of State for Social Security, had warned the Treasury that its proposal to cut his department's staff "fills me with despair".
The accusation by Labour came amid a big party political row over the leak to Chris Smith, Labour's social security spokesman, showing that Mr Lilley has agreed cuts in his budget of pounds 400m next year rising to pounds 1bn in three years' time.
A letter from Mr Lilley to William Waldegrave, Chief Secretary to the Treasury, warned that the impact on the DSS of Treasury proposals to cut running costs would be "devastating", and added: "Quite apart from the political fallout as service becomes chaotic, I am convinced - for reasons I've explained - that we would be cutting off our noses to spite our faces."
Labour sources suggested last night this could be a reference to the difficulties posed by staff cuts in hunting down social security fraud - itself believed to be an important component of the savings Mr Lilley has already agreed.
Mr Lilley's letter, sent on 24 October, reveals the Treasury was seeking a new 70 to 80 per cent youth rate for 400,000 under-25s claiming housing benefit - which has already been pegged to the average market rent level. Mr Lilley warns that this would require a Bill which would be "too great a risk at this stage of a Parliament".
But he announces officials have found a way to make an immediate saving of pounds 25m a year by switching many of the 143,000 people incapacitated by industrial injury to retirement allowances worth a quarter of the pounds 38.20 maximum reduced earnings allowances they receive at present.
Mr Lilley refused in a BBC radio interview to be drawn on the details in the leaked letter - first published in yesterday's Independent - which shows he offered to make cuts in housing and industrial injury benefit as well as clamping down on benefits for single parents.
"Blair said Labour were abandoning their opposition to reform, `thinking the unthinkable', and producing plans to curb benefit spending," he said in a statement. "Yet today Chris Smith reverts to the old Labour policy of knee-jerk opposition to any proposals for welfare reform. Social security already costs every working person pounds 15 every working day. Without my reforms, all opposed by Labour, the social security budget would continue to outstrip the nation's ability to pay."
However, the fact that even Mr Lilley, widely regarded as a Thatcherite, was resisting Treasury demands, is regarded byLabour as further evidence of a lurch to the right by the Government and one which is costing it dear in public support.
The letter shows Mr Lilley had consented to the abolition for new claimants of the pounds 5.20-a-week lone parent premium, paid to those on income support, and to the freezing of the one-parent benefit, paid to single mothers regardless of their income. The lone parent premium would also be frozen for existing claimants in a move that would hit some of Britain's poorest parents.
Chris Smith, under pressure to explain how Labour would reduce the social security budget, said: "I want tax cuts, but sensible tax cuts - and this is not the way to go about achieving those. The solution is not to remove benefit from people who need it, it is to get people back into work."
Refusing to commit a future Labour government to reversing the cuts, if they are made, he said: "That's not the issue. The issue is what's before us in the Budget."