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The government has proposed withdrawing housing benefit for most people under 25
The government has proposed withdrawing housing benefit for most people under 25, which could save £1.5bn. Photograph: Matt Cardy/Getty Images
The government has proposed withdrawing housing benefit for most people under 25, which could save £1.5bn. Photograph: Matt Cardy/Getty Images

Welfare cut proposals to go before ministers

This article is more than 11 years old
Iain Duncan Smith to lay out options for further cuts to welfare budget ahead of autumn statement by George Osborne

Iain Duncan Smith, the work and pensions secretary, will this week present further substantial welfare cuts for announcement in the autumn statement in what is being billed as a down-payment on a commitment to find an extra £6bn cuts in 2015-16, then £10bn in 2016-17.

Collapsing growth may make these cuts the minimum required by the Treasury.

The chancellor, George Osborne, first made reference to the need for an extra £10bn of welfare cuts in the March budget, and announced at the Conservative Party conference in the autumn that he had secured Duncan Smith's agreement in principle for the cuts. In return, Duncan Smith was given the final go-ahead for universal credit, his plan to merge a variety of benefits.

Government sources said on Tuesday the autumn statement in three weeks' time would map out how a large proportion of the welfare cuts are to be achieved and the work and pensions secretary will put a menu of figures and options before ministers for discussion this week.

Duncan Smith has already had bilateral talks with Osborne over possible cuts, but this week will be the first discussions with the quad of senior ministers, including Nick Clegg and the treasury chief secretary, Danny Alexander. It will be the first formal chance to find out what the Liberal Democrats are willing to accept, and the terms for their acceptance, including taxes on the wealthy.

Clegg has so far refused in public to accept further welfare cuts, and senior Liberal Democrats are piling on the pressure again for a form of mansion tax. Osborne has said he needs a further contribution from the wealthy, but has appeared to rule out a property or wealth tax.

Leading options for welfare cuts include restricting most working-age benefits to the first two children, affecting 310,000 families; freezing the up-rating of benefits for two years and then linking it to pay, as opposed to inflation; and withdrawing housing benefit for most people aged under 25, a move that would affect 385,000 people and save £1.5bn.

Duncan Smith and David Cameron have suggested all these options at various points in the past two months, but Liberal Democrats have described such plans as kite-flying.

Some Tories from the Free Enterprise Group, made up of influential new members of parliament, have recently reopened the argument about higher rate council tax bands. The prime minister has ruled out hitting pensioner welfare, such as the winter fuel allowance.

After Treasury fury at the way key plans in the March budget were leaked, Osborne has tried to impose a total clampdown on the negotiations. He blew out the Liberal Democrats for allegedly leaking his plan to cut the top rate of tax and the party has since agreed to keep internal discussions tighter.

Osborne believes his budget was a political disaster due to the key proposal of an income tax cut being leaked in advance, leading the media to focus on subsidiary issues and the "pasty tax" row.

The Liberal Democrats have made clear they will oppose the imposition of extra spending cuts simply to meet Osborne's target of ensuring debt is falling as a proportion of GDP by the end of the parliament.

The focus in terms of spending is more likely to be on extra capital spending to boost infrastructure investment.

The talks in the run-up to the March budget showed Clegg was willing to take risks as long as Cameron was willing to do the same.

In a recently published account, the then director of Liberal Democrat strategy, Richard Reeves, wrote of the budget talks: "It could have been more radical for both parties. One option on the table was a cut in the top rate of income tax to 40p, funded by the introduction of a 'mansion tax' on high value property. The top rate cut would have been a big Tory prize, but one that any self-respecting liberal could live with: after all, one of Clegg's achievements was to wean his party off its 50p top rate policy. And the first proper wealth tax on the British statute books would have been a big liberal prize, but one that any self-respecting 'compassionate' conservative should be able to stomach.

"But in the end the prime minister couldn't make the leap: the hostility to any kind of wealth tax on his backbenches and in the Tory shires scared him off. So we ended up with a 5p cut in the top rate – enough to give Labour an attack angle about a 'budget for millionaires' but not enough to win much more than lukewarm support from business and the conservative press – and a minimum tax rate for the better off, that few in Whitehall, let alone the general public, understand. What could have been a radical budget was barely a reforming one."

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