Brian Lenihan's December budget is set to cut €500m from child benefit

CHILD benefit is facing a straight cut of 20-25% in December's budget as the government has been advised that taxing or means testing the measure is not possible.

The saving of €500m-plus will go some way towards delivering the cuts of over €1bn required from the social welfare budget to meet the government's targets of overall savings of €4bn next year.

The government is looking at ways to lessen the impact of the cut on the less well-off, but one senior source said this weekend: "You can forget about taxing or means testing it."

Efforts to introduce the cut in child benefit on a sliding scale are still being explored, but are proving "horrendously complicated". However, it is anticipated that those not in employment will be protected from the cut. No decisions have been taken on whether or not the basic social welfare rates will also be cut, although the state old age pension will not be touched.

Options such as a cut of 5% in dole payments to those in the working age bracket – producing savings of €500m – are being explored.

However, sources said the decision on whether or not to cut social welfare rates would be taken last and only when the extent of other savings had been fully calculated.

"It's 50-50 as to whether it happens or not," one said.

The Sunday Tribune has also learned that the series of bilateral discussions between the department of finance and other departments is producing cutbacks on programmes equivalent to those recommended by An Bord Snip Nua.

While the state pension will not be reduced in the budget, senior government figures say it is "more likely than less likely" that retired public servants' pensions will be cut in line with any pay cuts in the public sector.

Despite reports that the government is willing to examine whether the required €1.3bn reduction in the public sector pay bill can be generated from reform rather than pay cuts, government sources estimate the maximum that can be achieved from such efficiencies and cuts in allowances, overtime and increments is around €700m.

That leaves public servants potentially facing cumulative pay cuts of at least €600m – suggesting an average pay cut of 3%.

However, it is understood any pay cuts will be introduced on a sliding scale, so it is possible that lower paid public servants might only see their pay reduced by one or two percent.

"That must be just about bearable," said one senior government figure this weekend, stressing that discussions on this issue were still "at a very early stage".

Informed sources say that, with a couple of exceptions, ministers and departments are signed up to the need to deliver the €4bn savings.