Retreat over maternity pay

The Government was in retreat last night over plans to make employers foot the bill for maternity benefit after facing an outcry from business leaders, Opposition MPs and senior Tory backbenchers.

The Prime Minister's office sought to defuse the row which threatened to embarrass John Major tomorrow when he hosts a seminar for small businesses at Downing Street.

"The Prime Minister is not in the business of adding to the burdens of small business," said a Downing Street source.

The Government was forced to backtrack after floating the idea of switching the cost of maternity benefit for 275,000 women from the taxpayer to employers as part of its search for savings on the pounds 85bn social security budget.

The British Chambers of Commerce called for the idea to be scotched at the earliest opportunity, warning that it would make businesses less willing to take on women and drive up employment costs.

Conservative Party sources privately blamed the Treasury for floating the idea, reported in yesterday's Daily Mail, which also recently reported that the Government was planning to abolish lone-parent benefit for new claimants.

Labour said it was taking the report seriously, and was mounting a campaign to halt it.

Tory right-wing opposition to the idea was led by David Shaw, vice-chairman of the Conservative backbench finance committee, who said it was "ludicrous". He added: "I should imagine this has been on a bit of Whitehall paper as a list of things that might be done. I think it very unlikely that the principle of state-funded maternity pay is going to be changed. There may be minor changes in the way it operates, but hopefully they will be more of a deregulatory nature making it less onerous and reducing paperwork for business."

The Treasury has been blamed for floating the idea of switching the cost of maternity pay to employers several times during the summer, but the hostile reaction to the latest report appears to have killed it.

The cost of statutory maternity pay has doubled since the law was changed to give women the right to 18 weeks statutory benefit after six months in work to match European law. It is expected to rise from pounds 465m this year to pounds 500m in 1996-97.

TUC General Secretary John Monks said it would be "a tax on women's jobs".The Royal College of Midwives warned it would cause pregnant women needless stress with "unforeseen consequences for the mental and physical health of the mother and unborn child".

Women are entitled to 90 per cent of earnings for the first six weeks and pounds 52.50 a week for a further 12 weeks.

Employers currently are reimbursed by the Government for the payments of maternity benefit to their employees. Under the Treasury's plans, the Chancellor was to announce in the November Budget that employers would have to meet the cost, although there was a possibility of a cut in National Insurance contributions by companies to limit the damage.