Cost-cutting UK govt curbs benefits in bold move

Britain will end child benefits for higher earners, finance minister George Osborne said on Monday, 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 and hit more than a million families, is a gamble for the Conservative-Liberal Democrat coalition government as it tries to smooth the way for a review of spending on October 20 that will detail heavy departmental cuts.

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

The coalition has aimed its axe at welfare spending — which hit £190-billion last year — as it seeks to cut record government borrowing. But these moves will barely dent a deficit seen reaching £150-billion ($237-billion) this year.

It is also a high-stakes political move and denotes a determination to do whatever it takes to cut borrowing 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,” 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.”

Cutting child payments from 1,2-million households with someone earning over £44 000 a year — 15% of the total families that claim the benefit — breaks with a long-held principle of “universal benefits” which are paid to all, regardless of income.

It could backfire with middle-class voters and raises the prospect of similiar cuts — moving into an area where 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 just over £1 000 per year for the eldest child and about £700 a year for each younger child.

“There are difficult choices to make,” said opposition Labour work and pensions spokesperson Yvette Cooper. “But it’s better to get the economy growing faster and raise more tax from the banks than to cut support for children in middle-income families.”

Conservative delegates, however, basking in their first year back in power since 1997, 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.

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,” Osborne said. “Vigilant at all times we remain, but there is no panic, no daily dread for the bond market.”

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.

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.” – Reuters

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