25 Nov 2015

George Osborne scraps controversial tax credit reforms

In a surprise move, the Chancellor tells MPs that his much-criticised plans to cut tax credits to working families are to be abandoned entirely.

Delivering his Autumn Statement to the House of Commons, Mr Osborne said “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 had faced a strong political backlash as the impact of plans to cut £4.4bn from tax credits became clear.

Conservative backbenchers had joined opposition MPs in raising their concerns, and then the House of Lords controversially voted to delay the cuts until a way of compensating low-paid workers was found.

At the time, Mr Osborne remained defiant, telling parliament: “we will continue to reform tax credits and save the money needed so that Britain lives within its means.”

However, on Wednesday he said that the combined effects of better tax receipts and lower debt interest means public finances are £27bn better off than at the time of the budget in July, allowing for the tax credit cuts to be abandoned.

Tax credit cuts: a case study
29-year-old Martyn Poole works 37.5 hours a week, earning £15,700. He has a wife and two children to support.
Under the proposed changes to working tax and child tax credits he stood to lose £1,850 a year.

Universal credit, which combines six key benefits into one payment is currently being rolled out across the UK.

Unlike the current system, the amount of universal credit gradually reduces as a claimant’s income increases, with the aim of always making recipients better off in work.

Responding to the decision not to press ahead with the cuts, Torsten Bell, director of the Resolution Foundation, said “it is very welcome that the vast majority of families will not see losses next April.”

Pain tomorrow

But Mr Bell warned that because cuts already made to the levels of universal credit have not been reversed today: “millions of low-income working families are still set to be significantly worse off by the end of the parliament if the universal credit roll-out goes ahead as planned.”

However, the Chancellor did announce changes to housing benefit, meaning that payments to new social tenants will be capped at the same level as private sector tenants. Housing benefit and pension credit payments to people who leave the country for more than a month will be stopped.

Counfounding expectations, Mr Osborne ruled out any cuts to police budgets in England and Wales.