Conservative Diary

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More details on today's benefits cuts

By Tim Montgomerie

"Tough but fair" is the Chancellor's mantra. Earlier today he announced the taxation of child benefit for those top-rate taxpayers. A once universal benefit is no available to everyone and my guess is that other similar benefits are going be eroded too. The change will create some serious disincentive effects as people move from just below the threshold for earning c£44,000 to just above. A small pay increase could mean parents jeopardising all their child benefit. It's hardly a perfect reform and my colleague Paul Goodman has told BBC News that it should be temporary because of the disincentive effects. Team Osborne defend the change on the basis that there are no easy ways to pay off the largest deficit in British history.

The big new announcement in his speech was the pledge that no workless household will get more money than the average working family. This cap on the total amount of benefit will be introduced in 2013 when the average family will be earning approximately £500 per week. The estimate is that 50,000 workless families will lose an average of £93 per week in order to be brought down below the cap. Some will lose £300. Aides to George Osborne are declining to specify the precise savings of this measure but predict hundreds of millions could be lopped off welfare spending.

The disabled, war widows and certain benefits like free school meals will be exempt from this cap.

Conservatives are insisting that this cap - coming on top of Iain Duncan Smith's proposal for a Universal Benefit - will create powerful incentives to work. The aim is not just to pay off Labour's deficit but also to create a pro-work climate.

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