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Working poor left out in the cold as benefit U-turn targets better-off

George Osborne's Budget this week is expected to reverse cuts to child benefit, but tax credit cuts will affect single mothers
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Thousands of middle-class mothers are to keep their child benefit under a partial U-turn to be announced by George Osborne in his Budget on Wednesday.

The Chancellor is to respond to widespread calls to reverse the planned cut in the £80-plus monthly handout for higher-rate taxpayers with a softening of the blow for those just above the planned threshold.

But there were demands yesterday for Mr Osborne to do more to help the working poor – particularly single mothers and parents working part time on low incomes – instead of targeting what little money there is on the better-off.

Labour accused the Chancellor of a £3bn a year "tax on motherhood" by releasing figures showing how mothers of school-age children are facing the brunt of cuts to benefits, pensions and tax credits.

And separate research by Save the Children showed that 150,000 of the poorest single mothers in the UK could be worse off if they work more than 16 hours a week, because of benefit and tax credit changes.

Mr Osborne, David Cameron, Nick Clegg and Danny Alexander meet tomorrow to finalise a bitterly fought Budget statement which appeared to have left the Liberal Democrats worse off.

Senior Lib Dem sources hailed a "Robin Hood Budget" which would leave "top-earning tax dodgers and their army of flashy accountants quaking in their boots". The "tycoon tax" is a trade-off for the Chancellor agreeing to reduce the 50p top rate of tax on incomes over £150,000 in the next few years.

But there was anger within the Lib Dems that Mr Clegg's "victory" of a "tycoon tax" – trying to make the wealthiest pay their fair share by cracking down on tax avoidance – was a poor substitute for a "mansion tax" on properties over £2m.

A former Lib Dem Treasury spokesman, Lord Oakeshott, said: "Taxing the super-rich is like hammering nails into a jelly – the only bit that can't wobble offshore is their luxury property.

"That's why our Lib Dem mansion tax really works on the seriously wealthy, including Tory tycoon donors, unlike a 'tycoon tax' which leaves non-doms' and non-residents' wealth offshore and off the hook."

Mr Osborne will still go ahead with a child benefit cut of some form, but he is expected to address the "cliff-edge issue" identified by the Prime Minister earlier this year – where parents who earn just over the higher rate of £42,475 suddenly lose their entire child benefit of £20.30 a week for the first child and £13.40 a week for each other child. Mr Osborne is looking at the possibility of a higher threshold of about £50,000, tapering the amount of benefit for those just over the threshold, phasing in the cut, or a combination of all three.

Yet there was little sign that Mr Osborne will reverse the planned cut in working tax credits, which from April will be limited to those working more than 24 hours a week.

Save the Children said 150,000 of the poorest single mothers faced losing money if they worked more than 16 hours a week, the current threshold. Karren Brady, The Apprentice judge, businesswoman and mother of two, said the planned universal credit had created a "major blind spot" which would mean that single mothers who worked longer hours and second earners would lose money.

She added: "It's crazy that mums who want to work could get hit by the system that is designed to make work pay. Many of the mums set to be affected by these changes already find it's barely worth working, once they've paid for child care, rent and the rest." Labour highlighted figures from the House of Commons Library, that show how, by 2014, some £7bn out of £10bn raised from 37 changes to benefits will be taken from mothers of school-age children.

Meanwhile, unions reacted furiously to news that Mr Osborne will scrap national pay rates for millions of public sector workers across the country to bring them into line with the private sector. Mark Serwotka, general secretary of the Public and Commercial Services union, which represents civil servants, said the move would be "cruel, economically incompetent and counterproductive" at a time when public sector salaries and pensions were being cut. Len McCluskey, Unite's general secretary, said: "All this will do is drive workers to the better-paid regions, leaving large parts of the country without the professionals essential to sustain local services." Chris Keates of the NASUWT pointed out that large organisations in the private sector have national pay and conditions frameworks.

Mr Osborne is expected to announce a relaxation of Sunday trading laws for the eight weeks of the Olympic and Paralympic Games this summer, with all shops allowed to open as long as they want – a measure that could boost the retail sector by £90m.

Predictions: What the Chancellor shoulddo – and what he will do

50p Tax rate:

What the leaks say: George Osborne will scrap the 50p top rate of tax for incomes in excess of £150,000 in a major concession to the Tory right – reducing it to 40p or 45p.

What the people say: 58 per cent oppose abolishing the 50p rate, according to the IoS/ComRes poll

What should happen: The rate should be kept at 50p because we are "all in this together".

What will happen: Using HMRC figures showing the 50p rate is not reaping as much revenue as intended, Osborne will announce a reduction to 40p – but, crucially, only by the end of this Parliament.

Wealth Taxes:

What the leaks say: Nick Clegg has "won" a "tycoon tax", ensuring that the richest will pay at least 20 per cent tax, but given up on a long-held Lib Dem dream of a mansion tax.

What the people say: 64 per cent – including 59 per cent of Tory voters – back a mansion tax on properties worth more than £2m.

What should happen: A proper wealth tax on property, through extra council tax bands on the most expensive properties.

What will happen: The Lib Dem leadership will claim the "tycoon tax" is a victory – but, in reality, it is unenforceable.

Child Benefit:

What the leaks say: Osborne will perform a partial U-turn on scrapping child benefit for higher-rate taxpayers by keeping it for parents earning £50,000 or less.

What the people say: 58 per cent agree with the cut.

What should happen: Child benefit should be kept for everyone and be paid directly to the mother whether she is in work or not, regardless of how much a couple earns. Like the NHS, universality is central to the welfare state.

What will happen: Some tinkering to avoid the "cliff-edge" issue highlighted by the Prime Minister. This will be achieved either by lifting the threshold; tapering, by reducing benefits for those close to the threshold; or phasing in the cut.

Income tax thresholds:

What the leaks say: We know the coalition is committed to lifting the personal allowance to £10,000 in this Parliament, but its introduction is widely predicted to come sooner.

What the people say: 81 per cent of people want the new threshold to be £10,000.

What should happen: The personal allowance of £8,105 for 2012/13 should be lifted to £9,000, then £9,500 in 2013/14 and £10,000 in 2014/15.

What will happen: Raising the income tax threshold is expensive – for every £100 that is raised above inflation, it costs the Treasury £500m – but the idea is highly popular and simple, so expect the new threshold to be £8,500.

Jane Merrick

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