25th November 2015
The Chancellor has u-turned on deeply unpopular plans to cut tax credits which had been expected to raise £4.4bn in his Autumn Spending Review.
George Osborne said that as a result of higher than expected tax receipts the measure is no longer necessary.
The climb down comes after the House of Lords voted to delay tax credit cuts in order to protect the worst-hit families.
Osborne said: “I’ve had representations that these changes to tax credits should be phased in.
“I’ve listened to the concerns. I hear and understand them.
“And because I’ve been able to announce today an improvement in the public finances, the simplest thing to do is not to phase these changes in, but to avoid them altogether.”
During his speech the Chancellor confirmed he would deliver the £12bn of planned welfare cuts in full.
Tax credits are due to be phased out and replaced with the new Universal Credit by 2018.
Shadow Chancellor John McDonnell welcomed the tax credit changes, but described the Government’s policy on tax credits as a “fiasco”.
“There was no attempt by the chancellor to understand the effects of the decision to cut tax credits,” he said.
He argued that it was not the “full and fair reversal” that it appeared, due to the impact of Universal Credit and also claimed that 500,000 more children live in “absolute poverty” compared to 2009/10.
The Child Poverty Action Group pointed out that Budget documents show the Treasury will save £605m this parliament as a result of changes to the Universal Credit timetable (see Tweet below).
Mike O’Connor, chief executive of StepChange Debt Charity, says: “We welcome the Chancellor’s decision not to implement the proposed changes to tax credits. However, we have concerns that people who have been spared the worst impact of the changes will still see significant cuts to their household incomes over the coming years with the transition to Universal Credit.
“We have particular concerns regarding the impact that changes announced today will have on the self-employed.
“Our research shows that this growing group have substantially higher debts than those in full-time or part-time employment. For many people, self-employment means volatile and insecure incomes and vulnerability to sudden changes in circumstance. Limiting the safety net available to the self-employed risks making many of them more vulnerable to debt problems.”