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George Osborne scraps tax credit cuts in welfare U-turn George Osborne scraps tax credit cuts in welfare U-turn
(35 minutes later)
George Osborne has executed a complete U-turn on his controversial cuts to tax credits, as he delivered what he called, “a big spending review from a government that does big things”. George Osborne has executed a complete U-turn on planned cuts to tax credits, as he used an unexpected £27bn fiscal windfall and signalled that he would fail his own welfare cap to defuse a damaging political row.
Osborne had promised to modify the plans, which would have seen 3m low-income families lose an average of £1,000 a year, after they were rejected by the House of Lords, and criticised by Conservative backbenchers. The chancellor had promised to modify his plan to cut tax credits – cuts that would have seen 3m low-income families lose an average of £1,000 a year.
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.”
Related: Spending review 2015: George Osborne scraps tax credit cuts - liveRelated: Spending review 2015: George Osborne scraps tax credit cuts - live
But delivering his combined autumn statement and spending review, the chancellor 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 cuts altogether. The chancellor also announced that there would be no cuts in the police budget, as he set out the government’s spending review for the next five years.
He will also raise an extra £1bn a year by 2020 from a new 3% stamp duty charge on buy-to-let properties and second homes, amid growing concerns that buy-to-let landlords are driving up property prices and crowding out local buyers. Reversing the 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.”
However, reversing the cuts, as well as being an embarrassing climbdown from proposals delivered just four months ago, will mean he breaches his self-imposed “welfare cap”, which was meant to limit the cost of social security. 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 chancellor said he would still cut £12bn from the country’s welfare bill, but do so “in a way that helps families, as we make the transition to our national living wage”. 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!!!!!!”
In a wide-ranging statement, he also announced £12bn of cuts to government departments, moving Britain “out of the red, and into the black”, promising that efficiency savings and changes in the way Britain is governed would allow the Treasury to continue investing in protected areas including health and education. 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.
He also delighted Conservative MPs by promising that there would be no cuts in police budgets, saying: “The police will protect us, and we are going to protect the police.” “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.”
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, amid growing concerns that buy-to-let landlords are driving up property prices and crowding out local buyers. Osborne said: “This extra stamp duty raises almost £1bn by 2021 – and we’ll reinvest some of that money in local communities in London and places like Cornwall which are being priced out of home ownership.”
In a wide-ranging statement, Osborne also announced £12bn of cuts to government departments to help move Britain “out of the red and into the black”. He promised that efficiency savings and changes in the way Britain is governed would allow the Treasury to continue investing in protected areas including health and education.
John McDonnell, the shadow chancellor, welcomed the U-turn on tax credit cuts but said he would be checking the small print. He told MPs: “Today the chancellor has been forced into a U-turn on his tax credits. And I want to congratulate all the members in this house on all sides who have made this happen. I want to congratulate the members in the other house. I am glad he has listened to Labour and seen sense.
“But as ever with this chancellor we await further clarification on the details, particularly if the limit to two children remains.”
Surplus targetSurplus target
The Treasury will still target a £10bn surplus on the public finances by the end of this parliament, as expected in his July budget. The latest forecasts show a £73.5bn deficit in the current financial year, falling to a shortfall of just £4.6bn in 2018-19, and turning into a surplus of £10.1bn in 2019-20. The Treasury will still target a £10bn surplus on the public finances by the end of this parliament, as stated in Osborne’s July budget. The latest forecasts show a £73.5bn deficit in the current financial year, falling to a shortfall of just £4.6bn in 2018-19, and turning into a surplus of £10.1bn in 2019-20.
Many departments will face deep cuts in their budgets for day-to-day spending: 37% for the Department for Transport, 15% for the Department for Environment, Food and Rural Affairs and 17% at Business, Innovation and Skills. Many departments will face deep cuts in their budgets for day-to-day spending: 37% for the Department for Transport, 15% for Environment, Food and Rural Affairs and 17% at Business, Innovation and Skills.
However, the chancellor stressed that capital budgets for longer-term projects will be protected, allowing him to promise the biggest road-building programme since the 1970s, and more funding for investment in innovative energy technologies, for example. However, the chancellor stressed that capital budgets for longer-term projects would be protected, allowing him to promise the biggest road-building programme since the 1970s, and more funding for investment in innovative energy technologies, for example.
Related: Autumn statement and spending review key points - liveRelated: Autumn statement and spending review key points - live
Public debt is now expected to fall, from 82.5% of GDP this this year to 81.7% in 2016-17, and continue declining until the end of the parliament, reaching 71.3% in 2020-21. Public debt is now expected to fall from 82.5% of GDP this year to 81.7% in 2016-17, and to continue declining until the end of the parliament, reaching 71.3% in 2020-21.
The chancellor also announced the independent Office for Budget Responsibility’s latest forecasts for the economy. GDP growth is expected to expand by 2.4% in 2015, unchanged from the July projection; and 2.4% in 2016, marginally up from the 2.3% the OBR was expecting in the summer; and 2.5% in 2017. The chancellor announced the independent Office for Budget Responsibility’s latest forecasts for the economy. GDP growth is expected to expand by 2.4% in 2015, unchanged from the July projection; by 2.4% in 2016, marginally up from the 2.3% the OBR was expecting in the summer; and by 2.5% in 2017.
Among the rare winners in the spending review were women’s charities, which will receive £15m a year from the so-called “tampon tax” - the VAT levied on sanitary products - and the sports budget at the Department for Culture Media and Sport, which is set to increase by 29%, allowing Britain to “go for gold” in the Rio Olympic Games. The Foreign Office will see its budget protected in real terms. Among the rare winners in the spending review were women’s charities, which will receive £15m a year from the so-called “tampon tax” – the VAT levied on sanitary products – and the sports budget at the Department for Culture Media and Sport, which is set to increase by 29%, allowing Britain to “go for gold” in the Rio Olympic Games. The Foreign Office’s budget will be protected in real terms.
As expected, Osborne singled out housing as a major theme, promising to double the housing budget to £2bn, and “turn Generation Rent into Generation Buy”, including by providing financial support for building 200,000 “Starter Homes” — a policy first announced earlier this year.