George Osborne does a U-turn on cuts to tax credits

Britain’s Conservative government has scrapped controversial plans to cut benefits to low-paid workers but will press ahead with deep cuts to many government departments. In his Autumn Statement and Spending Review on Wednesday, chancellor of the exchequer George Osborne also backed away from cutting the police budget in the wake of the terrorist attacks in Paris this month.

Mr Osborne was under pressure to reverse the planned cuts to tax credits, which would have left more than 3 million families worse off by an average of £1,100 a year from next April, after they were rejected by the House of Lords.

“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,” the chancellor said.

Deficit targets

Mr Osborne’s U-turn on tax credits will cost £4.4 billion but he said that better than expected tax receipts meant he would still reach his debt and deficit targets by the end of the current parliament. He told the House of Commons that the UK economy was on track to grow by 2.4 per cent this year and that he was on course to eliminate the budget deficit by the end of the current parliament, with a surplus of £10.1 billion predicted for 2020.

“Today, the forecast I present shows that after the longest period of rising debt in our modern history, this year our debt will fall and keep falling in every year that follows. We promised to move Britain from being a high-welfare, low-wage economy to a lower-welfare, higher-wage economy,” he said.

Despite his reversal on tax credits, Mr Osborne is pressing ahead with £12 billion in welfare cuts over the next five years, with new restrictions on housing benefit and tighter conditions for claiming other benefits. Promising to reduce state spending to 36.5 per cent as a share of total output in five years (it was 45 per cent in 2010), he announced painful cuts to some government departments. Spending on health, schools and defence is “protected”, as are some other elements such as pensions.

Bigger hit

This means that other departments have had to take a bigger hit, with Transport facing a massive 37 per cent cut; Business, Innovation and skills cut by 17 per cent; and Work and Pensions by 14 per cent.

The Justice department will also face cuts, including the closure of Holloway Prison, the biggest women’s prison in Europe, but the chancellor has left the police budget untouched and found more money for the security services.

Devolved governments in Wales and Northern Ireland will have greater tax-raising powers, as will local councils, making a rise in council tax likely for many in Britain.

Shadow chancellor John McDonnell welcomed the reversal of cuts to tax credits. Brandishing a copy of Mao’s Little Red Book, Mr McDonnell, who is among his party’s most left-wing MPs, quoted from it, warning Mr Osborne that “we must not pretend to know what we do not know”.