Child benefit will be frozen for three years from April 2011. The rate of child benefit will be kept at £20.30 per week for the eldest child and £13.40 per week for each other child in a family until 2014.
Announcing the measure, Mr Osborne said he had considered alternatives such as means-testing the benefit or taxing it, but he claimed that freezing it was the best way to control costs.
"To tax it would mean that working mothers received less than the non-working partner of a millionaire," the Chancellor said. "Means test it and we would have to create a massively complex new system to assess household incomes." Mr Osborne said that freezing child benefit "strikes the right balance between keeping intact this popular universal benefit while ensuring that everyone, across the income scale, makes a contribution to helping our country reduce its debts".
As the real value of child benefit falls, some families will also be hit by the Chancellor's scaling back of child tax credits. They are currently paid on a sliding scale for families with incomes of up to £58,000 (£66,000 for those with a child under one). But from next April they will be available only to families earning less than £40,000 a year. There will be a further cut in April 2012 when families earning over £30,000 with just one child will not receive any tax credits. In addition those earning £25,000 will have their entitlement cut from then.
The move to link benefits' increases to the lower consumer prices index rather than the higher retail prices index will also in effect hit the rate of child benefit, according to the TUC. It calculated that if child benefit had been linked to CPI since 2000 instead of RPI, it would now be £18.05 for the first child rather than the current £20.30. "Linking benefits to CPI rather than RPI will knock a bit off benefits and will soon mount up to a cut that will make a real difference to some of our poorest and most vulnerable families," said TUC general secretary Brendan Barber.