Pre-Budget statement: Child benefit taxation expected as the poorest are targeted for help poorest are targeted for help

welfare

TAXATION OF child benefit is expected to be given the go-ahead by Gordon Brown in his next Budget as part of a strategy for targeting welfare at the poorest in society.

Taxing child benefit was delayed in the last Budget for a year because of fears that it would be seen as an attack on "Middle England". But ministers have been encouraged by the lack of protests over the idea and Treasury sources privately confirmed that it would be implemented.

Child benefit will be raised by pounds 2.95 a week for the eldest child next April.

The Chancellor's pre-Budget report gives a clear hint that taxation will go-ahead. "The Chancellor said (in his last Budget) that if child benefit were raised in future there would be case in principle for higher rate taxpayers paying tax on it ... the Government is currently considering options for bringing child benefit into higher rate tax."

Childcare

The minimum income guarantee for a low paid family will be raised to pounds 190 a week from October next year as a result of the minimum wage, and tax and benefit changes.

It means that there will be a guaranteed minimum of pounds 190 a week with no income tax to pay on incomes below pounds 220 a week through the working family tax credit and the national minimum wage.

This would guarantee a minimum income for a lone parent working 35 hours a week, with one child under 11, of at least pounds 5.50 pounds an hour. A one- earner couple with two children, one under 11 and one aged 11-15, working 35 hours a week, would have an effective hourly rate of pounds 6.37 per hour. A lone parent aged 21, working 35 hours a week, at pounds 3 an hour, would have an effective hourly rate of pounds 5.31. All the figures include child benefit.

Mr Brown said he wanted to provide extra help for child care. The new childcare tax credit would be extended to cover all children up to the age of 14. In the case of children who are disabled, it would be extended to school leaving age at 16.

Pensioners

Pensioner couples are being guaranteed a new minimum income of pounds 117 a week.

This will be followed in the Spring Budget with a guarantee that pensioners will have no income tax to pay unless their income rises above a new specified level. There will be a guaranteed minimum income for single pensioners of at least pounds 75 per week through an increase in Income Support. The introduction of winter fuel payments will help all pensioner households.

Mr Brown denied a report that he was planning to raid personal pensions by cutting the tax relief on payments to the lower level of income tax, and by taxing lump sum payments into pension funds.

Iain Duncan Smith, the Conservative spokesman on social security, dismissed the assurances. He said: "We are seeing the end of the contributory principle on pensions. In the end, the pension will be a means tested benefit."

10p Tax Rate

The Chancellor said he still intended to introduce a 10p starting rate of income tax, but hinted that it was being delayed. It would be introduced `when it is economically right to do so".

The Disabled

The Chancellor said it was his intention to make work pay more than benefits for the poor and the disabled. There will be a new disabled person's tax credit (announced in the March 1998 Budget) to replace disability working allowance.

Mr Brown said it would make disabled men and women who take work an estimated pounds 78 better off from October 1999. There will be a new disability income guarantee of pounds 128 a week for the severely disabled out of work. The report added: "The Government will also be examining the extent to which people with exceptionally high care costs face unemployment and poverty traps and would welcome views on this issue."

The Government also plans to fast-track the disabled person's tax credit, for people who have been on statutory sick pay for 20 weeks, and who can demonstrate medical evidence that their condition represents an obstacle to work for the next six months and a drop in income from returning to work.

Pensions reforms

Downing Street confirmed yesterday that a scheme drawn up by Frank Field, the former Minister for Welfare Reform, for all workers to provide for their retirement by paying into compulsory second pensions, was killed off before it was even considered by the Cabinet's committee on welfare reform. The Field plan was seen as too expensive and politically risky because the better off would have paid higher contributions than those on low incomes to ensure that the poor were covered.

Ministers believe that new "stakeholder pensions," to be unveiled by Alistair Darling, the Social Security Secretary, next month, will have to include an element of compulsion. But the proposals are likely to be much less radical than Mr Field's.