The effect of the notorious 'bedroom tax' is likely to be mitigated in Northern Ireland under a deal reached with the Treasury over benefit changes.

The reprieve will cost the Executive £17m in the first year, but this sum will fall each year as fewer tenants become eligible.

The measure reduces housing benefit payments to people who have more bedrooms than the Government believes they need, although pensioners are excluded.

The aim is to force them to downsize, but Northern Ireland doesn't have enough smaller dwellings to meet demand.

Senior political sources have revealed that the Treasury has agreed to let the Executive waive the benefit reductions for existing tenants, though it will still apply to new ones. The cost in the first year will be £17m, which will have to be found locally. It is also intended to give time for smaller homes to be constructed.

The benefit changes are aimed at saving money and ensuring that it is more profitable to work than to rely on allowances.

However, most parties are agreed that the effects will be greater here because of the larger numbers of people on disability payments, the size of families and the rate of child poverty.

Yesterday the Northern Ireland Council for Voluntary Action said the changes would suck £750m out of the local economy.

This figure was disputed by Social Development Minister Nelson McCausland, who said it factored in rises in benefits which would have taken place if the system wasn't changed.

However, few people believe the eventual hit will be less than £600m, which is still a huge amount of spending power in an economy of 1.8 million people.

One of the least popular measures in England could, however, provide a boost here if the Executive does not introduce it.

The Assembly would receive around £10m a year to administer the Help To Work scheme aimed at the long-term unemployed, and if it does not implement it still gets the money to use elsewhere.

Other welfare changes include a cap on total benefit payments per household. Disability Living Allowance and Incapacity Benefit are being replaced by new schemes. More frequent and more stringent medical tests for those who say they are unfit for work are already underway.

Families will be hit when Child Benefit is withdrawn altogether from higher income households and frozen at present rates for the rest. Benefits generally will be eroded by inflation as annual rises are capped at 1% for most payments. Later a new Universal Credit will replace most means-tested benefits or working age benefits and is expected to produce more overall cuts.

Background

On March 8, 2012 the Welfare Reform Act received Royal Assent but. Since welfare and benefits are a devolved matter, it cannot be extended here without Stormont's agreement. The catch is that the amount we receive from Westminster to cover welfare costs is based on payments in England. So if we introduce our own system to protect people from the cuts we would have to make up the shortfall from cuts elsewhere, and we would have to pay for a new computer system to administer it.

Belfast Telegraph