Cost-cutting UK to curb child benefit

 

Britain will end child benefits for higher earners, chancellor George Osborne said today, felling a long-established payment to all families in a sign of the severity of spending cuts to come.

The curb, which will raise about a billion pounds a year from 2013, is a gamble for the Conservative-Liberal Democrat coalition government as it tries to smooth the way ahead of a four-year spending review on October 20th which will detail heavy departmental cuts.

Mr Osborne also announced a limit on the total benefits any one family can receive, which is expected to raise hundreds of millions of pounds a year from 2013.

Both measures will make only minor dents in a deficit expected to total Stg#150 billion this year but politically it is a high-stakes move and denotes 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.

"Tough but fair - because we are all in this together," Mr Osborne told the Conservative party's annual conference in the central English city of Birmingham.

"If someone believes that living on benefits is a lifestyle choice, then we need to make them think again and we need to change completely the system that has allowed and encouraged them to make such a mistaken choice."

The plan to withdraw child allowance from those earning more than #44,000 a year breaks with a longstanding British principle of "universal benefits" which are paid to all, regardless of income.

It could backfire with middle-class voters, a traditional Conservative base of support, and moves into an area which even former Conservative premier Margaret Thatcher, who relished rolling back the frontiers of the state, feared to tread.

Child benefit is paid to all mothers at a rate of #20.30 pounds a week for eldest child and #13.40 pounds for each younger child.

Conservative delegates were optimistic that voters would see the sense in spreading the pain.

"If people are reasonable they'll realise that they don't really need it," said Sandra Daniels, mayor of Bognor Regis, an English southern coastal town.

Mr 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 world has confidence in the plans that we have set out," Mr Osborne said. "Vigilant at all times we remain, but there is no panic, no daily dread for the bond market."

Mr Osborne's defence of his austerity drive, which has won the backing of credit rating agencies, 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.

Mr Osborne took aim at new Labour leader Ed Miliband, seeking to portray him as an economic liability.

"Let me take head on this completely false argument that delaying the cuts will somehow make them smaller and easier," he said. "The truth is exactly the reverse."

Mr Osborne warned 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 said. "And get our economy moving again."

Reuters