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Osborne Makes Surprise U-Turn On Tax Credit And Police Cuts

The Chancellor said that improvement in public finances means he is able to ditch controversial cut

tax credit cuts

George Osborne has surprised critics by doing a U-turn on tax credit cuts and vowing to protect police budgets in his spending review.

The British chancellor announced the climbdowns as he outlined spending plans for the Government over the next five years.

He said he could abandon the controversial cuts of £4.4bn to tax credits due to improvements in public finances.

However, while millions of low paid families will not now see their benefits cut in April, the relief for many will only be temporary because tax credits are to be phased out by 2018. Critics say that the new Universal Credit that will replace them is set to be less generous.

The Guardian reports: The chancellor had promised to modify his plan to cut tax credits – cuts that would have cost 3m low-income families an average of £1,000 a year. He was facing growing pressure from Tory MPs whose constituents were affected.

But as he delivered his autumn statement on Wednesday, Osborne said higher than expected tax revenues and lower interest payments on government debt had opened up an extra £27bn of fiscal wriggle room, which would allow him to cancel the £4.4bn cuts altogether.

To Tory cheers, he told the Commons: “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. Tax credits are being phased out anyway as we introduce universal credit.”

The chancellor also announced in the government’s spending review for the next four years:

  • There would be no cuts in the police budget.
  • £12bn of cuts to Whitehall budgets including 37% from transport budget and 15% from environment.
  • He will raise an extra £1bn a year by 2020 from a new 3% stamp duty charge on buy-to-let properties and second homes.
  • Women’s charities will receive £15m a year from the so-called “tampon tax” – the VAT levied on sanitary products

Reversing the tax credit cuts, as well as being an embarrassing climbdown from proposals made four months ago, will mean the chancellor breaches his self-imposed welfare cap, which was meant to limit the cost of social security. Osborne said he would still cut £12bn from the welfare bill, but would do so “in a way that helps families, as we make the transition to our national living wage.”

He said: “We will not be within that lower welfare cap in the first years. But the house should also know that, thanks to our welfare reforms, we meet the cap in the later part of the parliament. Indeed, on the figures published today, we will still achieve the £12bn per year of welfare savings we promised.”

The announcements mark a victory for Jeremy Corbyn and a series of Tory backbenchers and peers who had rejected the cuts to tax credits. Stephen McPartland, the Tory MP for the marginal seat of Stevenage, tweeted: “Delighted chancellor has listened and abolished the changes to tax credits. The victory is his and I can now return to the fold!!!!!!”

The £27bn fiscal wriggle room identified by the Office for Budget Responsibility allowed the chancellor to neutralise another political challenge: proposed cuts to the police budget. Osborne said he had abandoned these altogether.

“Now is the time to back our police and give them the tools do the job. I am today announcing there will be no cuts in the police budget at all. There will be real-terms protection for police funding. The police protect us, and we’re going to protect the police.”