Benefit cap WILL stay, insists No 10 amid fears they could ditch £26,000 cap

By Gerri Peev and James Chapman

Last updated at 7:42 AM on 14th June 2011

Downing Street last night slapped down a welfare minister who signalled a retreat over plans for a cap on welfare handouts.

Sources close to David  Cameron insisted Lord Freud had been wrong to suggest a new £26,000 limit on payments to families could be watered down.

As the Daily Mail reported  yesterday, the Tory welfare reform minister had signalled a climbdown on a promise that no household on benefits should be given more than the average family earns.

Slapped down: Sources close to David Cameron said Lord's Freud's suggestion that the £26,000 cap might be removed was not accurate, and he's been put right

How the Mail reported Lord Freud's comments yesterday

Lord Freud said: 'We’re looking at exceptional circumstances which some people may find themselves in and we are going to be putting out arrangements for that later in the year.'

Exemptions from the cap could occur 'wherever we think there’s something happening that is undesirable and we're looking very carefully at how to draw up those protections'.

His comments were seen as a concession to Liberal Democrat arguments that households with large numbers of children would not be able to survive under the £26,000 limit.

But there was deepening confusion last night as Downing Street insisted there would be no exceptions to the rule beyond those that had been indicated when the policy was unveiled at the Tory conference last year.

The Work and Pensions Department has already said that the cap will not apply to households on welfare because of serious disability, in receipt of a war pension, or on working tax credit because of low income.

Yesterday in the Commons, Work and Pensions Secretary Iain Duncan Smith insisted: 'The reality is that this policy is not changing because it is a good policy.

'Near on half of those of working age who are working actually earn less than £26,000 a year and they pay taxes to see some people on benefits earning much more than that figure.'

Mr Duncan Smith insisted Lord Freud had been referring to 'discretionary payments' to make sure the benefit cap was 'eased in properly'.

His comments were designed to ease fear among Tory ranks over the prospect of yet another major concession to the Liberal Democrats.

But a Liberal Democrat peer with responsibility for the party's welfare policy said there must be further watering down of the policy.

Lord German, co-chairman of a Lib Dem committee on work and pensions, insisted child benefit should be excluded from the limit.

'There must be an exception in order to provide fairness and justice for this relatively small group of people,’ he said.

The PM’s official spokesman also claimed that there would be ‘no change to the policy'.

He said: 'The Prime Minister thinks that most taxpayers take the view that we shouldn't be giving more than the average wage in benefits to a family.'

A senior Lib Dem source said: 'Some Lib Dems are concerned the effects on larger families will be too severe and that has not yet been settled.'