Published on 27 Oct 2015 Sections ,

Tax credits: Osborne says reforms will continue

Chancellor George Osborne says tax credit reforms will go ahead, despite the government’s dramatic defeat in the Lords on cuts for millions of low-income families.

George Osborne

Peers voted to delay the introduction of the reforms, a controversial move as members of the Lords are not elected and are expected, by convention, to approve government financial measures.

Speaking at Treasury questions in the Commons, Mr Osborne said he would announce plans to ease the transition for people adversely affected in next month’s autumn statement. The changes, designed to cut £4.4bn from the welfare budget in 2016-17, are due to be introduced next April.

‘Clear constitutional issues’

Mr Osborne told MPs: “Last night, unelected Labour and Liberal peers voted down the financial measures on tax credits approved by this elected House of Commons. That raises clear constitutional issues which we will deal with.

“We will continue to reform tax credits and save the money needed so that Britain lives within its means, while at the same time lessening the impact on families during the transition. I will set out the plans in the autumn statement.

“We remain as determined as ever to build the low-tax, low-welfare, high-wage economy that Britain needs and the British people want.”

Prime Minister David Cameron is later expected to announce a “rapid review” of the rules on the relationship between the Commons and the Lords.

‘Wreck’

Commons Leader Chris Grayling said nothing had been ruled out and accused Labour and Liberal Democrat peers of breaking parliamentary convention to “wreck” the government’s financial programme.

The government argues that too much public money is being spent on subsidising low pay and says its plans for a higher minimum wage and increase in the tax-free personal allowance will eventually compensate people who lose out from the tax credit cuts.

FactCheck Q&A: the tax credit crunch

The House of Commons Library has calculated that the average family on tax credits will lose around £1,300 in 2016-17. The full effects of the higher minimum wage and tax threshold changes will only be felt at the end of the current parliament.

Before last night’s vote in the Lords, there had been speculation David Cameron would create 100 Tory peers in the upper house if the government was defeated.

‘Tear up the rules’

Mr Grayling told BBC Radio 4’s Today programme: “I don’t think we are ruling anything in or out at this stage. My view is I would be reluctant to see us do really dramatic changes, but it is really a matter of trying to sort out the relationship between the Commons and the Lords, if the Lords is intent on wrecking the manifesto of the elected government.

“If it is their intention to tear up the rules that have applied for half a century and say, ‘We are happy to throw out the programme of the elected government’, then of course we have got to address that.”

Following the defeat, Mr Osborne said that while there would be help for families in his autumn statement, “I am determined to deliver that lower welfare, higher wage economy that we were elected to deliver and the British people want to see”.