Welfare spending

Tax credit cuts scrapped by Chancellor in surprise u-turn

Terry MurdenGeorge Osborne performed a major u-turn after announcing he is to scrap his planned cuts to tax credits rather than soften the blow as expected.

Announcing higher tax receipts, he told the Commons he was abandoning his intention to impose £4.4 billion of cuts.

He said: “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.”

Taper and threshold rates for working tax credits and child tax credits will remain the same.

Tax credits are due to be phased out and replaced by the new Universal Credit by 2018.

Bruce Saunderson, investment advisory leader, PwC in Scotland, commented: “While many hoped that there would be some movement on tax credit plans, few suspected the dramatic U-turn revealed today.

“Those households who rely heavily on tax credits will be hugely relieved – but they may not be out of the woods just yet.  They will need to have one eye on the impact on their pockets of Universal Credit when it is rolled out towards the end of the Parliament.

“This may have been his main rabbit of the day, as his previous favourite, personal allowances, remained firmly in the hat.  With no movement in the National Insurance lower earnings limit, many of the poorest employees will be kept outside of the income tax system. However, they will still liable for National Insurance  – a long standing but very expensive problem to fix.”

Ruth Davidson, Scottish Conservatives leader, said:The Conservatives are the party of the worker, raising the minimum wage to £9 an hour. I am pleased that changes to tax credits which could have undone that good work, will not go ahead and I applaud the Chancellor for listening.”

Calum Bennie, Savings Expert at Scottish Friendly said: “Christmas has come early to millions of low income families, who would have suffered a loss of over £1,000 a year from next April had the Chancellor not made today’s staggering u-turn on tax credits.

“Meanwhile, the increase in the state pension to £119.30 will be welcomed by pensioners, but while these small stocking fillers will soften the blow for some, others will still lose out from today’s series of announcements. In particular, student nurses will be less than enthralled following the announcement that their education will have to be funded by loans instead of grants, while other public spending cuts announced by the Chancellor will also cause real pain for many.”

TUC General Secretary Frances O’Grady said: “The Chancellor has been forced into a spectacular climb-down on tax credits. But by the end of the parliament many working people will still suffer big losses because he is keeping planned cuts to Universal Credit.”

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