Coalition hints at bringing end to universal benefit

Winter fuel payments to elderly people are under threat

David Cameron's claim to lead a "revolution of fairness" will be put to the test this week as the first wave of incapacity benefit claimants are ordered to find a job and the Treasury considers a plan to strip pensioners of universal benefits.

The Prime Minister uses an exclusive article in The Independent on Sunday to insist the fairness of the looming spending cuts cannot be measured by how much money the state spends on welfare.

But as the axe hovers over funding ahead of the spending review on 20 October, The Independent on Sunday has learnt that the winter fuel allowances paid to all over-60s could be restricted to the least well-off or taxed to limit the sum received by wealthy pensioners. It follows the row at the Tory party conference last week over plans to axe child benefit for high earners from 2013.

The move would strike at the heart of the principle of universal benefits for the elderly and fly in the face of assurances given by Mr Cameron that the payments would be "safe" under a Tory government. Some senior Tories oppose such a dramatic U-turn because of the damage it would cause to the Prime Minister's credibility.

However, with time running out to find the savings before George Osborne's Commons statement in 10 days' time, a number of earlier policy positions have already been abandoned. Business Secretary Vince Cable ditched his call for a "graduate tax" to fund university places.

But the move to alter the winter fuel allowance could prove the most explosive, as pensioners remain the most likely group to vote. It is understood the £250 payment could be limited to people who claim the benefit pension credit, saving £1.5bn a year – more than halving the cost of the scheme. Liberal Democrats are also pushing for the benefit to be taxed. Mr Cable has acknowledged that it is "odd" that he receives the payment.

Some ministers suggest raising the qualifying age from 60 to 66 – and cutting the basic payment. Lib Dem Energy Secretary Chris Huhne increased the pressure yesterday, when he said the fuel allowance had to be looked at "to make sure we're getting value for money".

Research by the charity Age UK reveals 40 per cent of the public believe the winter fuel allowance should be spared from cuts. In an experiment at each of the party conferences, the charity also surveyed an audience of Liberal Democrat, Labour and Conservative delegates to see how their views differed. Only 15 per cent of Tories said the allowance should be protected, dropping to 11 per cent of Lib Dems surveyed. Some 55 per cent of Lib Dems said the allowance was among the "two or three least important to protect from cuts".

With the Government apparently signalling an end to universal benefits, the Age UK poll also showed 73 per cent of the public opposes means testing. Only half of Tories surveyed at the party conference agreed that "everyone who has worked hard and paid taxes all their life deserves the same support from the Government in old age".

Michelle Mitchell, Age UK's charity director, said: "With the lives of thousands of older people at risk if essential care services are cut, the Chancellor will not quickly be forgiven if he fails to support the oldest and frailest, who rely on public services the most."

The think-tank Demos said the Government's proposed benefit reforms would see 3.5 million disabled people miss out on £9.2bn by 2015 – with the plan to move disabled people on to jobseeker's allowance accounting for half the losses.

The first wave of long-term claimants of incapacity benefit will be ordered back to work from tomorrow as new figures reveal the bill for keeping two million people on the sick has topped £133bn in the past decade. Two pilots to reassess claimants for their fitness to work begin in Burnley and Aberdeen, with only those in genuine need allowed on to the employment and support allowance (ESA). A trial to assess all new claimants for ESA from October 2008 to November 2009 showed only 6 per cent were unable to work at all.

It comes as the Lib Dem minister in charge of the spending review said his party must take ownership of the cuts. Danny Alexander, the Chief Secretary to the Treasury, said the decisions made in the next 10 days would be "guided" by his party's values. In a speech at the Scottish Lib Dem conference, Mr Alexander warned the spending cuts will "have consequences for every single person in this country".

The coalition is also preparing changes to university funding that could lead to massive increases in the cost of gaining a degree. An independent review this week by Lord Browne is expected to lead to increased tuition fees, more expensive student loans and restricted access to grants.

Yesterday, Mr Cable wrote to Lib Dem activists admitting he had been wrong to propose a graduate tax, which was "clearly not the right vehicle". "While it is superficially attractive, an additional tax on graduates fails both the tests of fairness and deficit reduction," he said.

It was reported that senior ministers have already agreed that graduates in highly paid jobs should pay back more than the cost of their degrees, to subsidise those who are less successful.