Families to be hit by George Osborne's tax credits cuts will be left in the dark for a month over the impact of the reform after his humiliating defeat at the hands of the House of Lords.
In a dramatic climbdown, Downing Street said letters telling three million people face losing the benefit may not be sent in December or implemented in April as planned as the top Tory was exposed to a bruising encounter in the Commons.
After peers halted his plans, the Chancellor will make a fresh attempt to get the policy through both houses of Parliament, and has announced he will reveal his plan to compensate those hit through "transitional" measures at the Autumn Statement, the financial update he will deliver on November 25.
It remains unclear how far Mr Osborne is willing to U-turn, particularly since the cut was expected to make up around one-third of the £12 billion of cuts promised in the Conservative manifesto.
With a potential £4.4bn blackhole in his budget, the Chancellor has three choices, according to Torsten Bell, director of the think tank Resolution Foundation: tone them down, phase them in, or protect those affected during the transition, all of which have its dangers.
TAX CREDITS: THE IMPACT
Tax credits are welfare payments to families raising children and working people on low incomes.
More than three million families will lose an average of £1,300 a year from April
The cuts will deliver £4.4bn of the Chancellor’s planned welfare cuts by reducing the earnings level at which tax credits start to be withdrawn from £6,420 to £3,850.ADVERTISEMENT
The Government says eight out of 10 would be "better off" overall from a package which also includes increases in the minimum wage for over-25s, rises in the income tax threshold and extended free childcare.
The former Ed Miliband adviser says toning down the policy could mean halving the savings to £2.2bn and reducing the average loss for families to below £700, and could prioritise protecting working households on the lowest incomes. But savings would need to be found elsewhere.
The cut could be phased in over a number of years to avoid the overnight hit, but would drag out the political pain for the Government, hence why it tends to be avoided.
Transitional protection, a "well-worn path for welfare reformers", would means only new tax credit claimants would be affected by the changes, but it would be expensive and discourage families from working more hours for fear of losing the hand-out.
Mr Bell writes: "Which you think is preferable will depend on how you balance off the costs to the Exchequer with the hit to family budgets, and whether you think the problem with these changes is the timing of the losses, or the sheer scale of them. In 29 days we’ll find out which the Government cares about more."