Social-welfare recipients will almost certainly see a reduction in weekly pay

SOCIAL welfare recipients are facing cuts in their weekly rates in next month's budget as the government moves away from plans to chop child benefit by 20% as originally en­visaged.

Informed government sources also say that a cut of up to 7% in public-sector pay is now "inevitable" despite the threat of strike action and that "extremely rough" cutbacks of €1bn will be made to the health budget.

They say that more modest cuts in the child-benefit budget of around €220m or 9% – targeted more at higher earners – means that it will be practically impossible for the government to avoid cutting all welfare rates, with the exception of the old-age pension, which will not be touched.

No final decision has been made on social welfare but, although child benefit will be reduced, the government is extremely wary of the political fall-out and the negative impact on child poverty. Therefore the cut is likely to be around half the €500m called for in the Report of An Bord Snip Nua. However, there will no avoiding massive cuts in the health budget. Options being considered include:

• A hugely controversial proposal to introduce a flat fee for medical-card holders when they order a prescription.

• Another increase in the €100 charge to visit an accident and emergency ward.

• A further hike in the €100 monthly threshold for the Drugs Payment Scheme beyond which non-medical card holders do not pay for drugs.

While these issues have still not been finalised, cabinet ministers are determined to press ahead with a cut in the public-sector pay bill.

They will take a lead by agreeing to a cut of around 15% in their own salaries. This cut will also be imposed on senior public servants and hospital consultants, who currently earn up to €240,000 from the state. Ways are also being examined to ensure judges too have to take a pay reduction.

The cabinet is said to be determined to face down the public-sector unions and it believes that the teaching unions, in particular, have called the public mood wrong by voting for industrial action.

"They are adamant that this is the time to fix things [regardless of the political fall-out]," one senior source said yesterday.

Ministers have also looked at applying cuts in public-sector pay to retired public-sector workers. However, it is understood that this has run into potential legal difficulties – particularly relating to a proposal to apply a tax rate of 10% on retirement gratuities.

Consideration is also being given to changing social-welfare payments to "incentivise" workers to return to the workplace, amid concerns that in a minority of cases workers with families and a mortgage may be financially better off on the dole.