Pressure forces Osborne to scrap tax credit cuts

Osborne cropped

​Chancellor backs down on plans after being told low income families would desperately struggle 

25th November 2015 by Robert Armour 0 Comments

Chancellor George Osborne finally bowed to pressure and scrapped proposed cuts to tax credits leaving millions of families breathing a huge sigh of relief.   

In what is being seen as a major victory for the third sector and anti-poverty campaigners, Osborne announced in his Spending Review and Autumn Statement he had listened to concerns and that improvements in public finances means he could shelve tax credit cuts. 

The proposal had provoked a rare rebellion in the upper house of parliament last month and had third sector groups fearing for the future of the most vulnerable families on low incomes.

7 top points from the Chancellor's Autumn Statement

  • No Big Lottery Fund cash grab to fund public spending shortfalls
  • Tax credits will not be cut in advance of their integration into Universal Credit
  • The Treasury announced another tranche of UK-wide grants to specific women, military and arts charities
  • Five housing associations pilots in England to sell off their assets through right to buy
  • The Scottish block grant will endure a real terms cut of 1.2% per year to 2020 (in England, there will be cuts to local authority budgets, but because of increases for policing and health (in England), the overall position for the Scottish Budget is more secure)
  • More cash for youth volunteering in England and Northern Ireland through the National Citizens Service
  • A mechanism for ensuring a fair share of the Chancellor's apprenticeship funding for Scottish employers, including charities, is currently being worked on but access to the fund won't be till 2017 at least

But Osborne told MPs: “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. What that means is that the tax credit taper rate and thresholds remain unchanged.”

It amounts to an unexpected but welcome u-turn for the Tory government as it forges ahead with welfare cuts.

It means the tax credits' income threshold will remain at £6,420 from April 2016 and the tax credits “taper” will remain at 41% of gross income.

However, offsetting the victory on tax credits was news that housing benefit for new social tenants will be capped at the same level as the private sector.

Citizen’s Advice Scotland (CAS), which has campaigned hard against welfare cuts welcomed the tax credits move but said capping housing benefit was “concerning”.   

CAS spokesman Rob Gowans said: "We welcome the chancellor’s decision not to go ahead with the planned changes to tax credits.

“Around 14% of Scotland’s households receive tax credits, and they’re one of the most common issues that people visit their local CAB for advice about.

“The planned changes would have meant an increase to the amount of families in low-paid work who struggle to pay living costs, and the reversal of some of these changes to tax credits will be good news for them.

“However the decision to cap housing benefit for people who live in social housing is concerning. In 2013, the introduction of the under occupancy charge caused a rise in people who could not afford to pay the rent, and on top of the imminent lowering of the benefit cap, these changes could lead to an increase in people struggling with rent arrears.”

Peter Kelly, director of the Poverty Alliance added: “Today’s announcement on tax credits is welcome, but families still remain under financial pressure. 

“Families will still lose the family element of tax credit, and working-age benefits remain frozen until the end of this parliament. 

“We are now at the stage where there is nothing to cut. We are hurting the most vulnerable in our society.

“Instead of taking money out of the pockets of the poorest, the UK government should focus their energies on closing the £122bn tax gap.

“This £12bn of welfare cuts are a matter of choice, not necessity.

“There is a better way, and we believe that closing the tax gap is a part of this.”

Elsewhere, Osborne said he would protect funding for the Big Lottery Fund after it was widely expected cash would be diverted from good causes to fund sports and arts projects.

Recent reports had suggested the share of National Lottery Good Causes which were to be distributed though the Big Lottery Fund would be cut from 40 percent to 25 percent, meaning a reduction in Scottish funds from £70m to £30m a year.

During Prime Minister’s Questions before the autumn statement, the Prime Minister assured the SNP's Tasmina Ahmed-Sheikh that the fund would be protected. A

The Prime Minister gave the following reply: “I can certainly tell the Honorable Lady that we will be protecting the Big Lottery fund, it does an absolutely excellent job.”