Budget cuts still top of agenda in Britain

Benefits for the elderly, including the winter fuel allowance and free bus travel, are being targeted by ministers in the hunt for spending cuts.

The Government is also considering whether to scrap child benefit payments to better-off families to help fund an overhaul of the welfare state in a spending review due to be published on October 21.

As ministers grappled with politically unpalatable decisions, George Osborne, the Chancellor of the Exchequer, said the coalition's actions would help to build a "fairer" Britain.

And Nick Clegg, the Deputy Prime Minister, was to try to reassure voters that the coalition was about more than cuts by promising to boost the prospects of youngsters from the most disadvantaged families.

But, as the coalition reaches its 100th day in office, the need to agree on huge savings has sent tensions soaring between Cabinet colleagues.

The biggest flashpoint is between the Department for Work and Pensions and the Treasury over where the axe will fall on the benefits bill.

Iain Duncan Smith, the Work and Pensions Secretary, has been told by Osborne that he must identify further deep savings in his budget if he is to realise his ambition of fundamentally reforming welfare.

Duncan Smith's problem is that redesigning the benefits system to make it simpler will cost up to £3 billion ($6.5 billion). The chancellor has told him to identify savings of £13 billion, on top of benefit cuts already announced in the Budget, to justify the expenditure.

Duncan Smith is considering ways to limit winter fuel allowances for older people, which last year were £250 per household, or £400 where at least one partner is 80 years old. Critics say the £2.7 billion bill is impossible to defend - particularly as many middle-class pensioners use it as an annual windfall once they reach the age of 60.

One possibility is raising the qualifying age to 75, the same age that free television licences are issued. Alternatively, winter fuel allowances could cease to over-60s and instead be targeted only at the worst-off pensioners.

Ministers are also examining the £1 billion-plus cost of free off-peak travel from the age of 60. The qualifying age could be raised to 65 or 70 or the benefit could be means-tested.

Restricting benefits to older people would embarrass Prime Minister David Cameron, who before the election denounced as "lies" claims that the Tories planned to cut them.

Osborne said yesterday: "The commitment on the winter fuel payments is there in the coalition agreement and was made during the election campaign and is there for all to see."

However, the agreement promises only that the coalition will "protect key benefits for older people", and fails to rule out restricting the number of people who qualify for them.

Duncan Smith is also known to be sceptical about the merits of retaining child benefit as a universal entitlement. Restricting it to less well-off families could save £5 billion but provoke a backlash from middle-class voters.

Osborne has warned means-testing the benefit would mean setting up a "massively complex new system".

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