George Osborne has made a complete U-turn on planned tax-credit cuts, but vowed he would still deliver £12bn reductions to welfare spending.
Delivering his Spending Review today, the chancellor abandoned planned £4.4bn cuts to tax credits after facing fierce opposition and rejection of the proposals in the House of Lords.
Mr Osborne claimed ‘improvements to public finances’ would allow him to climb down from the controversial proposals.
He told the House of Commons: ‘The simplest thing to do is not to phase these changes in, but to avoid them altogether.
‘What that means is that the tax credit taper rate and thresholds remain unchanged.
‘I propose no further changes to the universal credit taper or to the work allowances beyond those that passed through Parliament last week.’
Mr Osborne explained how tax credits would be phased out by the introduction of universal credit by 2018 anyway.
He admitted his plans would breach the welfare cap he imposed in 2014 in the early years of this parliament but said he would meet it again by 2020.
The £115bn cap based on Office of Budget Responsibility forecasts for 2016/17 limits the amount of cash that can be spent on certain welfare payments without the need for parliamentary approval.
Mr Osborne insisted in 2014 that breaking the restriction ‘would be a failure of public expenditure control’.
The chancellor also announced that the rate of housing benefit in the social sector would be capped at the relevant local housing allowance for new tenants.
He added: ‘We’ll also stop paying housing benefit and pension credit payments to people who’ve left the country for more than a month.
‘The welfare system should be fair to those who need it and fair to those who pay for it too - so improved public finances and our continued commitment to reform mean that we continue to be on target for a surplus.’