Osborne set to strip families of up to £300 a week in benefits

Chancellor George Osborne revealed claimants will no longer be able to pocket more in benefits that the average working family earns as he seeks to slash the welfare bill.

In a move which delighted Tory activists but sparked trade union claims of a return to 1980s policies, Mr Osborne said handouts are expected to be capped at around 26,000 a year – or 500 a week – when the policy is implemented in 2013 as part of the Government’s plan to show it pays to work.

Benefit claimants currently living in expensive areas will be forced to move elsewhere under the scheme, which would see money deducted from their housing benefit and is likely to hit big families the hardest.

Mr Osborne said the move would help the welfare state “reflect the British sense of fair play” to regain the trust of taxpayers. He also confirmed he has reached a deal with Work and Pensions Secretary Iain Duncan Smith to tear up the current benefits system and introduce a single payment.

“Unless they have disabilities to cope with, no family should get more from living on benefits than the average family gets from going out to work,” he said. “No more open ended chequebook – a maximum limit on benefits for those out of work.”

Treasury aides would not reveal exactly how much the move would save, saying only that it was expected to be “hundreds of millions of pounds”.

Some families currently receive more than 800 a week – 41,600 a year – in benefits such as jobseeker’s allowance, income support, employment support allowance, council tax benefit, child benefit and child tax credit. They stand to lose 300 a week, although those on Disability Living Allowance and War Widows will be excluded.

Councils will be responsible for enforcing the limit, and have been promised extra cash from the Government to cover their costs.

Sally Copley, head of UK policy at Save the Children, said: “Families will bear the brunt of George Osborne’s announcement on capping benefits. We already have 3.9 million children living in poverty in this country, and it’s not clear what the full consequences of today’s announcement will be.

“His cap will certainly hit bigger families – as this measure doesn’t take household size into account – and those who live in parts of the country where housing is very expensive.

“We agree with the principle that families should be better off in work than on benefits but we challenge the Chancellor to repeat his commitment that child poverty will not worsen as a consequence of his measures.”

TUC general secretary Brendan Barber said: “Everyone can agree that we need a fairer economy built on higher, better balanced growth.

“But the spending and benefit cuts will do the opposite – pushing many people into poverty, hitting middle income Britain hard and threatening growth.

“Nor will we create a more balanced economy when Ministers are dismantling the policies, belatedly adopted by the previous Government, that support manufacturing and green jobs.

“The language may be different, but the policies are all too reminiscent of the 1980s.”

Mr Osborne was preceded on stage by Marks and Spencer chairman Sir Stuart Rose, who backed the Tory plan to take drastic action to reduce the deficit.

The Chancellor warned that delaying action would store up problems for the future and jeopardise the economic recovery as he launch a fierce attack on Labour’s new leader Ed Miliband who he said was isolated with the unions in believing tackling the deficit could be deferred.

Meanwhile Health Secretary Andrew Lansley admitted the coalition partners would “not be popular” because of the measures they will implement to cut the deficit.

“We must expect not to be popular because, much as we know that the nature of the difficult decisions that we have to do are in that sense of our making, we didn’t create the debt crisis.”

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