Leaked papers signal block on rise in benefits

HARD EVIDENCE that the Government is considering freezing or under-indexing a whole range of benefits from April emerged yesterday.

Labour was leaked a speaking note for a meeting between Peter Lilley, Secretary of State for Social Security, and Michael Portillo, Chief Secretary to the Treasury, and an internal DSS memo, both of which refer to the 'presentational difficulties' of the moves.

The documents also refer to legislation on uprating - which would be needed if the statutory link was broken that normally raises benefits including invalidity and unemployment benefit and pensions by inflation.

The leak follows the Independent's report earlier this month that the Treasury has been seeking a freeze or under-indexation - perhaps a 2 per cent rise against the 3.6 per cent increase in prices - of pensions, income support and invalidity benefit.

Income support, which goes to the poorest, is not protected by legislation, although it customarily rises by a formula which excludes housing costs. The state pension is not only statutorily increased in line with prices, it is also covered by a Conservative manifesto pledge to 'protect its value against price rises'. Some ministers have argued that will preserve the pension rise. But social security sources yesterday indicated that while Mr Lilley is taking the manifesto pledges seriously, that was different from saying 'they are completely safe'.

The DSS memo says that freezing invalidity benefit, or under-indexing it, will reduce the pounds 500m the Treasury hopes to take from taxing it. But it adds: 'More widely, the Secretary of State may wish to register the presentation difficulties of benefit freezes affecting the poorest if it is planned to raise tax allowances for those in work (in the Budget).' The speaking note adds that 'careful consideration and handling' will be needed to avoid 'difficulties if we are seen to hit sick and disabled but protect those able to work'.

Mr Lilley's department yesterday refused to comment on the documents, which date from the end of last month, but Gordon Brown, Labour's shadow Chancellor, and Donald Dewar, the party's social security spokesman, yesterday challenged Norman Lamont 'to rule out any under- indexation of benefits'.

Mr Dewar predicted 'many Tories would be unable to stomach' benefit freezes hitting the poorest while those in work gained. He promised a rough ride for any legislation to break the inflation link.

Mr Brown argued that the documents showed 'that the freezing or under-indexation of vital benefits is on the agenda'.

Mr Lilley's speaking note reveals just such fears, pointing out that if the Treasury's desire to tax invalidity benefit (IVB) from 1994 is granted, that could jeopardise the planned cuts in entitlement to the benefit which he plans.

IVB, which is claimed by 1.4 million people, would be hit by three Bills in quick succession - one to break the inflation link, taxation of it in the Finance Act, and a Bill to restrict the scope of the benefit. 'Announcement of taxation will seriously jeopardise the prospects of carrying the IVB review Bill,' the note says.