UK govt to curb child benefits

2010-10-04 14:46

Birmingham - Britain will stop paying child benefits to higher earners as part of its plans to slash the budget deficit, which will involve harsh spending cuts across the spectrum, Finance Minister George Osborne said on Monday.

The move will save £1bn a year from 2013 - small change compared with a forecast borrowing requirement of around £150bn this year.

But politically it is a high-stakes move for Britain's coalition government and suggests a determination to do whatever it takes to cut debt despite warnings from the opposition Labour Party that acting too fast will choke off a fragile economic recovery.

"We are going to withdraw child benefit from higher rate taxpayers. It's a big decision for us, but we think it's absolutely necessary and fair given the financial situation we face," Osborne told BBC News.

The plan to withdraw the child allowance by 2013 from families earning more than £44 000 a year breaks with a longstanding British principle of "universal benefits".

Allowances such as child benefit and free bus passes for the elderly that are paid to all, regardless of income.

Unpopular move

The move will not be popular with middle-class voters, the Conservatives' traditional base of support, and moves onto policy ground on which even former Conservative premier Margaret Thatcher, who relished rolling back the frontiers of the state, feared to tread.

Osborne will give a speech later to the annual conference of his centre-right Conservatives, senior partner in Britain's five-month-old coalition government, in which he will defend his cuts agenda in the face of fears about slowing growth.

Osborne will unveil plans on October 20 to slash ministries' budgets by around a quarter over five years to curb a record peacetime budget deficit.

The coalition wants to transform the welfare payments system so that those in work are always better off than people who are on benefits. This will be achieved by replacing a range of benefits with a single credit.

Osborne played down the risk that deep spending cuts could plunge Britain into a double-dip recession, even though his cabinet colleague, Justice Secretary Kenneth Clarke told a newspaper on Sunday he did not rule out that scenario.

"The real risk would be not taking action," Osborne said.

Financial danger zone

The decisions the coalition had taken had moved Britain out of the "financial danger zone" and interest rates paid by homeowners and businesses had come down, Osborne said.

"So I think the action we've taken means that we are set for a steady and sustainable recovery," he said.

Osborne's defence of his austerity drive, which has won the backing of credit rating agencies and financial markets, comes amid growing fears of a global economic slowdown and with the opposition Labour Party ahead in opinion polls for the first time in three years.

Labour argues that only solid economic growth can deliver the tax revenues needed to pay down debt.

In his speech, Osborne will take aim at new Labour leader Ed Miliband, seeking to portray him as an economic liability.

‘False argument’

"Let me take head on this completely false argument that delaying the cuts will somehow make them smaller and easier," Osborne is expected to tell the Conservative conference, according to a party source.

"The truth is exactly the reverse," he will say.

Osborne will warn that holding off spending cuts would drive up market interest rates, trigger a downgrade to Britain's top-notch credit rating and endanger the recovery.

"We will stick with our plan. Deal with our debts," he will say. "And get our economy moving again."

- Reuters