Budget Aftermath: Tighter benefit rules intended to cut down fraud: Rosie Waterhouse looks at the effect of measures limiting claimants' rights to social security payments

PETER LILLEY'S clampdown on benefits for people he implied were fraudsters and scroungers was at the heart of his shake-up of the benefits system it emerged yesterday. But cuts amounting to pounds 2.5bn over three years were tempered with new help with child care costs for an estimated 150,000 working families.

At a press conference after his statement to the House, the Secretary of State for Social Security revealed that about 70,000 people a year who would previously have received Invalidity Benefit would not be entitled to the new Incapacity Benefit and be forced to register as unemployed following the introduction of a tough new medical test assessing fitness for any work.

He also said that following a change in benefits for unemployed people, about 90,000 people a year who would have qualified for Unemployment Benefit for 12 months would lose all benefits after six months. From April 1996, Unemployment Benefit will disappear and all unemployed people will claim a new Jobseekers' Allowance for six months and then claim Income Support, provided they can prove they are actively seeking work. Mr Lilley said about 90,000 people who would have received Unemployment Benefit in the first year would not qualify for Income Support because they had savings. They would be able to claim National Insurance Credits and so still be registered unemployed.

In his statement to the Commons, Mr Lilley announced a crackdown on fraud and the creation of a Fraud Board to step up prevention, deterrence and detection of fraud. He was was also stopping 'a number of abuses'.

He said: 'I shall discourage local authorities from paying Housing Benefit for unnecessarily expensive property. I shall stop councils paying Housing Benefits to people who entered this country on the express understanding that they will be no burden on public funds.'

Mr Lilley also announced details of the plans to help working families with child care costs. From next October, families with children under 11 will be able to offset up to pounds 40 a week of child care costs against their earnings when claiming family benefit and related benefits including housing benefit and council tax benefit. This will be worth up to pounds 28 and it will be available to couples where both are working or one is incapacitated and to lone parents. It will cover the cost of registered child minders or nurseries. He estimated 150,000 families would receive it - 50,000 of whom would move off Income Support.

The Daycare Trust, which lobbies for better child care services, welcomed the allowances and called for investment in services such as day nurseries and childminders.

Charities and pressure groups reacted angrily as details of the cuts to benefits became clear. Paul Convery, of the Unemployment Unit, said: 'The potential losers from introducing the Jobseekers' Allowance are people who have paid National Insurance Contributions during their working years in good faith . . . In effect they are imposing a tax on redundancy payments.'

Ian Bynoe, legal director of the mental health charity, Mind, said: 'The changes to statutory sick pay will close the door to work for people with mental health problems. Medium to large employers will now be discouraged from recruiting or retaining anyone who has previously received psychiatric treatment. If without work, such a person will likely find it much harder to claim the new incapacity benefit. A narrower medical test is bound to exclude some genuine claimants.'