Scrapping housing benefit will be Tory manifesto promise

Plans to scrap Britain's £14bn-a-year housing benefit system are to be included in the Conservative manifesto at the next general election.

Plans to scrap Britain's £14bn-a-year housing benefit system are to be included in the Conservative manifesto at the next general election.

The pledge, which will form the centrepiece of the party's welfare reforms, will allow the Tories to outflank the Government and find cash for tax cuts, party sources say.

The idea to pursue the revolutionary option of abolishing the benefit is seen by strategists at Conservative Central Office as crucial to their commitment to "cut back the state".

Senior Tories have been rattled by Labour's charge that their tax guarantee, which promised to reduce the overall burden of taxation over the lifetime of a Parliament, is economically illiterate.

A complete overhaul of housing benefit, which accounts for one-eighth of the entire social security budget, would allow Michael Portillo, the Shadow Chancellor, invaluable room for manoeuvre for tax cuts.

"This is a benefit long overdue for reform. Labour have failed, we won't. We're determined to do it and we believe it will be enormously popular with voters," a senior Shadow Treasury source said.

The cost of housing benefit has doubled since 1990 and trebled since 1986, making it the fastest-growing element of the entire welfare state. Housing benefit fraud is estimated to be around £600m a year.

Although critical of the Government's own failure to tackle such ballooning costs, the Tories have until now baulked at offering their own solution. Under plans currently being drawn up, housing benefit would be replaced by a capped housing allowance for those out of work, with strict limits on eligibility for the payment.

Unlike the current system, run by local councils with varying degrees of efficiency, the new set-up would be centralised and computerised.

Crucially, Mr Portillo's Shadow Treasury team, which was given the task of finding a suitable alternative, believes that its plans can protect pensioners, who will be an important voting group at the next election. Forty per cent of claimants are pensioners.

Housing benefit means that rents are paid - often in full - by local councils who then claim the money from the Department of Social Security.