POLITICS

Tax Credit Cuts U-Turn From George Osborne Just Weeks After Lords Forced Him To Retreat On £4.4bn Plan

25/11/2015 13:04 GMT | Updated 26/11/2015 09:59 GMT

George Osborne has caved in to huge pressure and announced a full-scale U-turn on his planned cuts to tax credits for millions of Britain’s working poor.

Just weeks after his humiliating defeat in the House of Lords, the Chancellor was forced to axe his £4.4bn cuts to the in-work benefit and admitted he will bust his own self-imposed welfare cap.

Mr Osborne used a £27bn windfall from higher tax receipts and lower interest payments to dump the cuts.

He will still slash £12bn from the overall welfare bill, but said he would now do so “in a way that helps families, as we make the transition to our national living wage.”

The U-turn is a huge scalp for Jeremy Corbyn, his first big political victory since becoming leader in September.

But the key turning point came when the House of Lords - in a plan first exclusively revealed by HuffPost UK - drafted a cross-party motion to block the cuts.

Mr Osborne told a packed Commons today: "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."

Tory MPs - who had warned the cuts would ruin Mr Osborne's chances of becoming Prime Minister - were delighted at the move.

Stephen McPartland, who with David Davis was among just two Tories to vote against the tax credits plan, Tweeted his reaction.

But in a further humiliation, the Chancellor admitted he will now bust his own cap on welfare spending and Treasury aides revealed it would be breached for the next three years.

Reaction to the U-turn was swift.

Labour's Shadow Work and Pensions Secretary Owen Smith and think tanks like the Resolution Foundation said that Mr Osborne's cuts would still hit the poor hard through the Universal Credit cuts.

Mr Smith said a a single parent of two children working full time on the Minimum Wage on Universal Credit will lose £2,400 next year due to the Chancellor’s cuts.

"I welcome the fact that the Chancellor has bowed to Labour pressure and reversed the immediate unfair cut to Tax Credits.

"However, this is not the full and fair reversal we demanded, as he is still taking £1 billion from working families next year and over £3 billion by the end of the Parliament, as Tax Credits are replaced by Universal Credit.

“In short, this is a smoke and mirrors Spending Review from George Osborne, leaving working people worse off."

Torsten Bell of the Resolution Foundation said: “Universal Credit is the big loser because the cuts to it have not been reversed.

Pain tomorrow is better than pain today – but it is still pain.”

A bullish Mr Osborne unveiled the tax credit cuts in his summer Budget just weeks after the Tories won the 2015 general election.

Yet within hours he was greeted with a welter of criticism, with charities and other campaigners warning that some of Britain's poorest families in work were facing a drop of £1,300 each if the tax credit plan had gone ahead.

Critics - including Tory backbenchers like Heidi Allen - warned that his cuts overshadowed the huge increase in the minimum wage that he badged as the 'National Living Wage'.

Groups like the Institute of Fiscal Studies and Resolution Foundation had predicted that the living wage rise would only make up just 13% of the tax credits cuts.

The fiasco was Mr Osborne's worst political blunder since his 'Omnishambles' Budget of 2012, when he was forced to U-turn on things like the 'pasty tax'.

Today, Mr Osborne's former special adviser tweeted that the Lords' anti-tory majority had re-taught the Chancellor the lesson from US President Lyndon Johnson: know how to count.

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