U-turn sees Osborne drop plans for cuts to tax credits
British Chancellor George Osborne abandoned planned cuts to tax credits in his Autumn Statement yesterday.
In a dramatic U-turn, he claimed that improving public finances had allowed the government to maintain the benefits but still meet targets to eliminate the deficit.
In what will be billed as a major volte face by the chancellor, the decision follows months of controversy over the £4.4bn (€6.2bn) cuts, which were announced in the 'emergency' budget after the election.
The Tory government faced massive protests from its own backbenchers over the plans to reduce tax credits for working families and was defeated last month in the House of Lords.
Delivering what he said was "a big spending review by a government with big plans", Mr Osborne added that he had listened to the concerns and decided to "help" by scrapping the cuts entirely.
The move was made possible within Treasury targets by improved forecasts from the independent Office for Budget Responsibility that gave Mr Osborne an additional £27bn over the five-year period of the Spending Review. Tax receipts are expected to be higher than predicted in July and the cost of the national debt lower, according to the new OBR figures.
Mr Osborne said that would allow him to borrow £8bn less than planned and spend £12bn on infrastructure, as well as maintain tax credits, while remaining on track to deliver a £10.1bn surplus by 2020.
Although tax credits will survive, the British government still plans to slash £12bn from the welfare budget.
He confirmed pensioners will be protected by the 'triple lock' guarantee that the basic state pension will rise every year by the highest of either inflation, average earnings or a minimum of 2.5pc. Next year it will mean a rise of 3pc, the biggest in 15 years, to a £119.30.
In a barb aimed at John McDonnell, the shadow chancellor, Mr Osborne said he was "fixing the roof while the sun is shining". Mr McDonnell said in an interview this week that he would "throw up" if he heard the expression again.
He said: "To simply argue public spending must always go up, never be cut, is irresponsible."
He announced a series of deep cuts to Whitehall departments, including a 17pc reduction in the budget of the Department for Business. While the department's science and research funding will be protected in real terms, grants for businesses will be replaced with loans. Mr Osborne frustrated campaigners for reform of business rates by revealing that a review of the tax that was due to report by the end of this year will now not be published until next year's budget. He extended a relief scheme for small businesses, however, and confirmed that collection will be devolved to local authorities.
The Department for Transport will suffer a 37pc cut in its operational spending and the Department of Energy a 33pc cut. The Department of Culture will get a 20pc cut, but Mr Osborne said Arts Council funding will be protected as hitting Britain's successful cultural sector would be a "false economy". Free entry to museums will also be preserved.
There were also new tax-raising measures, including a 3pc rise in stamp duty on buy-to-let and second homes, a measure Mr Osborne said would help working people get on the housing ladder alongside a trailed house-building programme. The tax increase will bring in nearly £1bn per year, he added.
Employers will also be hit by a new 0.5pc 'apprenticeship levy' that will raise £3bn per year. The new tax is higher than the big business lobby had hoped.
As Mr Osborne sought to head off attacks from Labour in the wake of the Paris attacks he revealed there will be no cut to the police budget. (© Daily Telegraph London)