Spending Review: Chancellor ditches controversial tax credit cuts

The surprise decision not to go ahead with the £4bn cut to working tax credit was announced by Chancellor of the Exchequer George Osborne in his Spending Review today.

It follows strong opposition from welfare campaigners after the plans were first announced in July’s Budget, and comes a month after the House of Lords ruled against the measures.

The cuts would have seen a substantial drop in the level of benefit received by nearly three million working parents by 2020. The government had argued this would be offset by the rise in the proposed National Living Wage from 2017.

The Chancellor instead told the House of Commons today that an improved growth forecast from the independent Office of Budget Responsibility meant he could scrap the proposal altogether.

However, he said the saving will be realised by changes to Universal Credit later in the decade.

The move was welcomed by children's charities and child poverty campaigners.

Matthew Reed, chief executive of The Children’s Society, said: “The Chancellor has made the right decision in abandoning his plans to cut tax credits for working families.

“Children would have been the biggest losers had these deeply unfair cuts gone ahead and we welcome this reversal.”

However, Reed warned that the decision to freeze working-age benefits for the next four years and increasing the number of families affected by the benefit cap would force more children into poverty.

Sam Royston, chair of the End Child Poverty coalition, said: “Millions of working families up and down the country will breathe a massive sigh of relief because of the Chancellor’s decision not to cut in-work tax credits.

“End Child Poverty members know just how crucial this support is to making sure that they don’t have to choose between putting food on the table or buying their child a decent winter coat.”

Unison general secretary Dave Prentis, said the U-turn will come as a relief to nearly three million working families.

“Since the cuts were announced in the summer, parents have faced increasing anxiety over losing the tax credits they rely upon so heavily,” he said.

“We’re pleased that the Chancellor has made good use of the thinking time last month’s Lords' vote gave the government.

“In 2018 new claims for tax credits will stop, and the families receiving them will start to be switched on to Universal Credit. The Chancellor must not use this change as a way to revive his original plans and leave working families worse off in 2020 than today.”

Amanda Batten chief executive of Contact a Family, said the announcement would come as a relief to families with disabled children.

"This will be welcome news for around 150,000 working families with disabled children who were likely to be affected by this," she said. "Tax credits remain a vital lifeline for many families with disabled children who have a difficult job juggling work and caring responsibilities and who rely on tax credits to pay for basics like food and heating."

Despite the U-turn Osborne said the government was on track to meet its target to deliver the £12bn of welfare savings it promised in its election manifesto. This will be done through reducing the amount of benefit paid through Universal Credit and housing benefit in the coming years.