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| George Osborne scraps tax credit cuts in welfare U-turn | George Osborne scraps tax credit cuts in welfare U-turn |
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| George Osborne has executed a complete U-turn on planned cuts to tax credits, using an unexpected £27bn fiscal windfall as he signalled that he would fail his own welfare cap to defuse a damaging political row. | |
| 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. | 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. | 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.” | 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 - live | Related: Spending review 2015: George Osborne scraps tax credit cuts - live |
| The chancellor also announced in the government’s spending review for the next four years: | |
| 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.” | 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 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. | 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.” | “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.” | 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. | 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. |
| 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. | 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 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 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. | 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. |
| 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. | 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 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. | 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. |
| Related: Autumn statement and spending review key points - live | |
| 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. | |
| 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.” |