George Osborne has unveiled a bold plan to get Britain's ballooning benefits bill back under control, while introducing fair play into the financing of the welfare state.
In his keynote speech to the Conservative conference in Birmingham, the Chancellor announced that the Coalition Government will introduce a new £500 a week cap on welfare benefits, designed to ensure that workless households no longer receive thousands of pounds in benefits more than the average working family receives in pay.
At the same time, child benefit will be withdrawn from households paying tax at the higher rate, to ensure that people on low incomes are no longer taxed to provide child benefit for those with bigger salaries.
The changes mean that household benefit payments will be capped near the median earned income after tax and National Insurance for working families - around £500 per week by the time of implementation in 2013.
The cap will apply to combined income derived from benefits including Jobseekers Allowance, Income Support, Employment Support Allowance, housing and council tax benefits, Child Benefit, and Carers Allowance. Benefits like Social Fund loans and free school meals are not affected, and people with Disability Living Allowance and war widows will also be excluded.
The withdrawal of Child Benefit from higher rate taxpayers - saving an estimated £1 billion a year -will also apply from 2013, administered through the tax system. There are currently 1.2 million households where higher rate tax is applied which qualify for child benefit. The 6.6 million families with no higher rate taxpayers who receive the benefit will remain unaffected by the change.
The Chancellor said: 'If the welfare state is going to gain the trust of the British people, it needs to reflect the British sense of fair play. So for the first time, we will introduce a limit on the total amounts of benefit any one family can receive; and the limit will be set according to this very simple principle: 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.'
As for child benefits, which cost taxpayers about £12 billion a year, the Chancellor declared: 'I understand that most higher rate taxpayers are not the super-rich. But a system that taxe working people at higher rates only to give it back in child benefit is very difficult to justify at a time like this.
And it's very difficult to justify taxing people on low incomes to pay for the child benefit of those earning so much more than them.
'We have got to be tough but fair, and that's why we will withdraw child benefit from households with a higher rate taxpayer. When the debts left by Labour threaten our economy, when our welfare costs are out of control, this measure makes sense.'