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Tax credit climbdown would threaten welfare cap, IFS warns Tax credit climbdown would threaten welfare cap, IFS warns
(about 1 hour later)
George Osborne is at risk of breaching his self-imposed ceiling on welfare spending if he makes concessions on plans to curb tax credits to hard-pressed families, Britain’s leading thinktank on the public finances has said.George Osborne is at risk of breaching his self-imposed ceiling on welfare spending if he makes concessions on plans to curb tax credits to hard-pressed families, Britain’s leading thinktank on the public finances has said.
The Institute for Fiscal Studies said that unless the chancellor could find savings from elsewhere in the benefits bill, it looked likely that he would have to ask parliament to raise the welfare cap announced in the summer budget. The Institute for Fiscal Studies said unless the chancellor could find savings from elsewhere in the benefits bill, it looked likely that he would have to ask parliament to raise the welfare cap announced in the summer budget.
Osborne is expected to use his autumn statement and spending review on Wednesday to revisit the decision to save £4.5bn a year by limiting the tax credits that help those on low incomes.Osborne is expected to use his autumn statement and spending review on Wednesday to revisit the decision to save £4.5bn a year by limiting the tax credits that help those on low incomes.
After Osborne announced his plans, the IFS said 3m households would lose an average of £1,000 a year. But since the House of Lords voted to delay the cuts and to compensate those affected in full, the chancellor has been forced to think again.After Osborne announced his plans, the IFS said 3m households would lose an average of £1,000 a year. But since the House of Lords voted to delay the cuts and to compensate those affected in full, the chancellor has been forced to think again.
The IFS said, however, that watering down the planned changes would make it impossible for the chancellor to keep welfare spending below the cap of just over £115bn in 2016-17 unless the independent Office for Budget Responsibility unexpectedly changed its forecasts for the economy and the public finances.The IFS said, however, that watering down the planned changes would make it impossible for the chancellor to keep welfare spending below the cap of just over £115bn in 2016-17 unless the independent Office for Budget Responsibility unexpectedly changed its forecasts for the economy and the public finances.
“If the OBR’s forecasts were to remain unchanged but the chancellor had to unwind (or compensate for) some of his planned cuts to tax credits, then – without commensurate cuts elsewhere – he would breach his cap. Doing so would force him to go to parliament for a vote to raise the cap.”“If the OBR’s forecasts were to remain unchanged but the chancellor had to unwind (or compensate for) some of his planned cuts to tax credits, then – without commensurate cuts elsewhere – he would breach his cap. Doing so would force him to go to parliament for a vote to raise the cap.”
The IFS said there were only two ways that Osborne might avoid the embarrassment of breaching his own cap next week. “The first is for him to find some alternative cuts to other spending within the welfare cap. This comprises mainly working-age benefit spending – such as child benefit, housing benefit and disability benefits – though does also include some benefits paid to pensioners, such as pension credit and the winter fuel allowance. Such cuts would presumably be ones that were considered but rejected in favour of the tax credit cuts in July.”The IFS said there were only two ways that Osborne might avoid the embarrassment of breaching his own cap next week. “The first is for him to find some alternative cuts to other spending within the welfare cap. This comprises mainly working-age benefit spending – such as child benefit, housing benefit and disability benefits – though does also include some benefits paid to pensioners, such as pension credit and the winter fuel allowance. Such cuts would presumably be ones that were considered but rejected in favour of the tax credit cuts in July.”
The only other way to avoid a Commons vote would be if the OBR reduced their forecast for welfare spending, since that would give the chancellor a “little more wiggle room under the cap.” The only other way to avoid a Commons vote would be if the OBR reduced their forecast for welfare spending, since that would give the chancellor a “little more wiggle room under the cap”.
The thinktank added: “It will be interesting to watch next week how Mr Osborne navigates these treacherous waters and avoids the obstacles he constructed for himself.”The thinktank added: “It will be interesting to watch next week how Mr Osborne navigates these treacherous waters and avoids the obstacles he constructed for himself.”