Spending Review: Welfare reforms to save £7bn

Welfare reforms have taken centre stage in the chancellor's Spending Review amid promises of more changes to come.

George Osborne said an extra £7bn would be saved from a raft of cuts to payments and eligibility, on top of cuts announced in the Budget in June.

Cuts to child benefit were confirmed and a new announcement will affect those whose ability to work is hampered by illness or disability.

Campaigners said the plans would have a significant impact on families.

Benefits

In a controversial move announced by Mr Osborne at the Conservative Party conference earlier this month, child benefit will be cut for families with a higher rate taxpayer from January 2013.

If both parents earn less than £44,000 a year, they will continue to receive child benefit. But families with one main earner on more than £44,000 will see their benefit stopped.

The Spending Review documents show that this will save the government £2.5bn by 2014-15.

Another measure announced by Mr Osborne will save more than £2bn by 2014-15.

Employment and Support Allowance is a payment to people whose ability to work is limited by disability or illness, and is replacing incapacity benefit.

Payment will be limited to one year for those who are able to do some work and whose payment is based on their National Insurance contributions.

Sarah Richardson, from Worthing, has a condition that brings muscle and joint pain and leaves her struggling to work.

The former teacher, who is awarded close to £5,000, said the move would seriously affect those with bad illnesses.

"I had always assumed that a safety net was in place. This suggestion of a scrounger mentality is really unpleasant," she said.

Mr Osborne said that the current "complex" system of means-tested working age benefits and tax credits would gradually be replaced by a universal credit that would "sharpen" work incentives and reduce fraud and error.

But Mark Goldring, of Mencap, said that there needed to be a suitable network of support in place for people to do this.

"The focus on benefits to work masks the fact that many disabled people would love to work and come off benefits but have simply never been given the opportunity or the support to do this."

The mobility element of disability living allowance for those in residential care will be abolished, saving £135m by 2014-15.

At present this is paid at two levels - the lower at £18.95 a week and the higher at £49.85 per week. A higher rate mobility component can currently be used for things such as the hire or lease of a mobility car at an affordable price.

Families

As well as the child benefit changes, families will see various changes to some of the previous Labour administration's flagship welfare policies.

The changes will include pensions, benefits, and housing costs

From next year, couples with children must work at least 24 hours a week between them in order to be eligible for working tax credit.

The percentage of childcare claimable under the family element of working tax credit will be trimmed from 80% to 70% - saving £400m.

"Taken together the measures in this Spending Review will have a considerable impact on families," said Helen Dent, chief executive of charity Family Action.

"Unfortunately many of the announcements make it difficult for work to pay and our research shows that the welfare caps will disproportionately affect couples and in some cases could cost the Treasury more.

"We had hoped George Osborne would throw families a life jacket. Instead he's making it all the more difficult for them to keep their heads above water."

However, to tackle child poverty, a couple entitled to child tax credits will see the child element of the benefit increase by £30 per child in 2011 and by £50 in 2012, the chancellor announced.

Pensions

One key change already announced, which will affect the incomes of households including public sector workers, is higher employee contribution rates to their workplace schemes.

This will save the government £1.76bn by 2014-15, the documents show, and make a dent in these workers' take-home pay.

For state pensioners, winter fuel payments, free eye tests, free prescription charges, free bus passes, and free TV licences for the over 75s will remain.

For homeowners, help with paying mortgage interest bills under the Support for Mortgage Interest (SMI) scheme will also continue until 2013. This is aimed at helping people who have lost their jobs. It currently kicks in 13 weeks after a claim and operates for mortgages of up to £200,000.

Douglas Alexander, the shadow work and pensions secretary, said that welfare changes could stop people trying to get into work.

"Welfare has to play its role in any sensible plan to reduce the deficit but it is harder, not easier, to get the deficit down when you are throwing hundreds of thousands of people out of work," he said.

"We are concerned that the real term cut to Working Tax Credit, cuts for support for childcare and steep rises in train fares affects people's incentives to move into work."