Tory tax plans put child benefit at risk: Next manifesto could focus on radical shake-up of taxation system

CHILD BENEFIT for all families regardless of need is unlikely to survive if the Conservatives win the next election, Peter Lilley, Secretary of State for Social Security, indicated yesterday.

Mr Lilley ruled out breaking the current manifesto pledge to maintain the benefit and increase it in line with prices. But he gave the clearest hint yet of future change. There have been growing expectations that the 'universal' benefit will not be protected in the next election manifesto on the ground that large numbers of middle class people do not really need it.

'We shall have to see,' he said. 'What is clear if you look back on the history of child benefit is that it's a benefit that replaced a tax allowance . . . that fundamental principle of the tax system was that you didn't pay tax until you'd earned enough income to keep you and your family alive and there was a personal allowance for each member of the family,' he told ITV's Walden programme. 'Then the child element of that was converted from a tax allowance into a child benefit going directly to the mother.'

Future plans to axe the benefit could coincide with the results of a radical review ordered by Kenneth Clarke, the Chancellor, into whether the tax and benefits system should be merged as part of the drive to keep the lid on spending.

While people formerly on benefits would receive a single net payment, known as 'negative income tax' from the state, most taxpayers would pay an amount of tax less any benefits to which they were entitled.

While such a system could save millions in administration cost it would also smooth the way for a benefit for children to be targeted according to need, without entering the politically sensitive territory of a means test.

One minister who supports an integrated system warned yesterday that implementation of the merger reform could take years - and that no Chancellor would introduce it simply to solve the political problems surrounding a particular issue such as child benefit, despite its pounds 6bn a year cost. Ministers could adopt the simpler option of clawing back child benefit by taxing it.

The concept of a merged system has been circulating for years, but Nigel Lawson, when Chancellor, rejected it decisively in 1986, saying that tax liabilities were measured over 12 months for convenience, while social security benefits were assessed weekly so that poorer families could always meet their needs. Mr Clarke, however, has a much more open mind.

Supporters say an integrated tax and benefit system would make more sense to the man and woman in the street, but despite Labour's parallel examination of the benefit system, the end of universal child benefit may still provoke a political backlash, especially if it coincides with the eventual phasing out of mortgage interest tax relief and the married man's allowance, which are also on Mr Clarke's agenda. The combination of all these factors, however, with an integrated system could produce lower income tax rates.

Labour's Social Justice Commission, which is due to make a final report to the party next autumn, is already canvassing whether remodelling child benefit as an allowance through the tax system could help to pay for more child care and nursery school places.

A costed pledge to increase the benefit, worth pounds 10 a week for the eldest and pounds 8.10 for each subsequent child, was a central plank in Labour's 1992 election campaign and Donald Dewar, the shadow Secretary of State for Social Security, insisted yesterday that Labour's prime concern was relieving child poverty.

But he added: 'That obviously means we are looking at all the ways in which we can deal with that.'

Speculation over whether a basic state retirement pension for everyone would survive into the next century was, however, finally laid to rest yesterday as Mr Lilley echoed Mr Clarke's recent pronouncements by pledging that it would stay 'for ever'.

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