Lib Dems will accept cap on benefits ‘in return for tax rises on rich’

THE Liberal Democrats have admitted that they would accept a cap on child benefits in exchange for Tory concessions on new taxes for the rich.

Work and Pensions Secretary Iain Duncan Smith has announced he wants child llowance and tax credits to be limited to two children per family, as part of a way of finding savings of £10 billion from the welfare budget.

Mr Duncan Smith, who is trying to overhaul the welfare system to “make work pay”, has cited the “destructive behaviour” that high benefits encourages.

His limit would affect child benefit, which pays every family £20.30 a week for the first child and £13.40 for any others, and child tax credits, which can be worth up to £8,227 a year for a family with two children but for a large family can be more than £35,000 annually.

From January next year child benefit will become means tested, to be reduced where a member of a family earns £50,000 a year, and not paid where a member of the family earns £60,000. Tax credits are only available to families on low incomes.

There are no government estimates on how much a two-child cap would save, but the Children’s Society charity puts the figures at £3.5bn from tax credits and £1bn from child benefit – almost half the £10bn demanded by the Treasury from the welfare budget.

The proposal, which is not yet official government policy, was met with immediate opposition by the Lib Dem junior coalition partners.

Lib Dem business secretary Vince Cable said: “We don’t agree with that. We made it very clear we will not go along with welfare cuts which are unfair.”

He added: “We would not support it. Iain is a very decent, humane and good minister, and the principle he’s trying to address and has done since he came in is that it’s fundamentally unfair for people to be better off out of work than in work.

“That’s the fundamental unfairness he’s trying to deal with. But this particular proposal – I don’t know whether this is kite- flying or a misunderstanding of what he said – wouldn’t be acceptable.”

But a senior Lib Dem source last night told The Scotsman that the party would be willing to consider Mr Duncan Smith’s proposal if measures such as a mansion tax on properties worth £2 million or more or a new wealth tax, currently opposed by the Tories, were agreed.

The source said: “Iain Duncan Smith’s proposal is not yet government policy, but all these go into a pot along with our proposals and then we discuss them.”

However, a cap on child benefits would infuriate child poverty charities.

Gingerbread, a charity supporting one-parent families across the UK, said the government should work on “real solutions” rather than penalising families.

Chief executive Fiona Weir warned that the proposal would have “a devastating impact on children”.

Alison Garnham, chief executive of Child Poverty Action Group, said hardest working families had been “first in the queue for cut”.

She added: “Children aren’t a private luxury but a public good. They are the future of our economy, our future workforce.

“They will pay the taxes that will pay for our schools, hospitals and pensions in the future. This idea is out of touch with the realities of people’s lives – how many potential parents can be sure they will still have the same job in nine months time?”