?40 a week to stay at school

A major expansion of state payments of up to £40 a week to encourage youngsters in Britain's run-down urban areas to stay on at school after the age of 16 will be announced by the chancellor in tomorrow's Budget.

In a move certain to reopen the debate about the future of child benefit for 16 to 18-year-olds, Gordon Brown is to earmark tens of millions of pounds to increase the number of areas piloting educational maintenance allowances (Emas).

With the chancellor putting the finishing touches to his fourth Budget, government sources yesterday shrugged off as "total rubbish" reports that he was at loggerheads with the prime minister over April's planned 1p cut in income tax.

"There has been no row about the basic rate of income tax," one Whitehall insider said, stressing that the government's priority was to increase the amount of money available to improve public services, particularly health and education, rather than a further reduction in the basic rate from 22%.

In what is being billed as a tight package overall, Mr Brown is to target tax cuts selectively, with more generous tax breaks for the working poor and budding entrepreneurs high on his list of priorities. Sources said that the chancellor and the education secretary, David Blunkett, had been so impressed by the instant impact of Emas in 15 pilot areas that they have fast-tracked plans to widen the scope of the experiment from the start of the next academic year.

Early evidence from the pilots launched last September shows that the payments of up to £40 a week for the poorest families have had a marked effect on the numbers staying on at school and that they could raise the national staying-on rate of 80% by up to 6 percentage points.

In opposition, Labour floated the idea of abolishing child benefit for those over 16 who stay on at school and replacing it by means-tested Emas. Fears that it would antagonise middle-class voters meant that the idea was put on ice before the election, with Labour's manifesto committing the party to a review of educational support for the over-16s.

However, Mr Brown remains a keen supporter of the idea, believing that it would help to tackle educational underperformance in poor areas, where staying-on rates average only 35%. Government sources said last night that the future of child benefit was still an open question, but added that if Emas proved to be a success there would be renewed impetus for a radical overhaul of the current system.

Mr Brown and Mr Blunkett are keen to see which form of Ema works best, since in some pilots the allowance is paid to the mother rather than the student. The speed at which the benefit is phased out and the cut-off point where families are no longer eligible also varies.

The new pilots in September will test whether the payment of transport costs has any impact on staying-on rates.

Mr Brown believes that the payments will have a marked impact on educational attainment, giving youngsters a better chance of escaping from poverty.

With the Conservatives yesterday stepping up their recent attacks on the government's record on tax, sources said there was no split between the chancellor and the prime minister on whether government help should be focused on eradicating poverty or boosting health spending.

The shadow chancellor, Michael Portillo, said the average working family was paying an extra £600 a year more in tax under Labour.

Using figures prepared by the House of Commons library, Mr Portillo said that the average family was losing £400 a year on pension tax; £175 on petrol; £139 on tobacco; £98.50 as a result of the abolition of the married couples tax allowance; and £100 resulting from council tax rises.

"Labour would like us to believe that they have only raised tax on fat cats and the super rich," Mr Portillo said.

"These figures show that it is actually ordinary hard-working families who are being hit."

The chief secretary to the treasury, Andrew Smith, insisted that the tax burden on the average family was falling, adding that Mr Portillo was launching a "desperate attempt" to hide the fact that his policy of cutting tax while increasing public spending did not add up.

Mr Smith said that the tax burden on the average family was falling to its lowest level since 1972. "Households on average will be £380 a year better off and the average family will be £740 a year better off," he said.