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UK backs off cuts to tax breaks for lower income households

Published:Thursday | November 26, 2015 | 12:00 AM

Britain's Treasury chief abandoned controversial cuts in tax credits for the working poor and kept police funding intact on Wednesday as he updated Parliament on the government's budget plans.

George Osborne said improvements in public finances made it possible to back away from the unpopular credit cuts his government had proposed earlier. As members of his party cheered, Osborne said he accepted the concerns of those who feared the impact on people making minimum wage.

"I've listened to the concerns. I hear and understand them," he said. "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."

The move was made possible by higher-than-predicted tax receipts and lower interest rates. The Office for Budget Responsibility, an independent agency, estimated that public finances would be £27 billion (US$40 billion) better off over the course of Parliament than it had forecast in July.

A measure to eliminate £4.4 billion in tax allowances for the poor had been blocked in April in an unusual move by the House of Lords, the upper house of Parliament. The vote was a sharp defeat for Prime Minister David Cameron's government, which had claimed the cuts would be offset by a higher minimum wage.

Despite the U-turn on tax credits, Osborne promised to keep in place £12 billion of cuts from the welfare budget over the next five years. The cuts were promised by the Conservative Party during the last election.

He also announced plans to boost property ownership as he delivered the so-called Autumn Statement, one of two showpiece budget updates.

Osborne announced plans to help build 400,000 affordable homes, a decision that had prompted British newspapers to print images of him in a hard hat and describe him as "George the Builder." Housing is under strain throughout the country.

But the statement also detailed deep cuts in public spending, effectively shrinking the size of government. No cuts were made in policing in the wake of the recent attacks in Paris.

"Now is not the time for further police cuts," he said. "Now is the time to back our police and give them the tools to do the job."

The opposition Labour Party quickly countered that the British people will feel "betrayed" by Osborne's failure to eliminate the deficit.

"Today is the day the chancellor was supposed to announce austerity was over," said John McDonnell, the economic spokesman for Labour.

To the bemusement of the chamber, he waved a copy of the late Mao Tse-Tung's little red book, quoted the Chinese leader's advice on economic policy and joked about the government's recent overtures to attract Chinese investment.

He then tossed the book in Osborne's direction and said, "I thought it would come in handy for you in your new relationship."

The Treasury chief picked it up and said: "Oh look! It's his personal signed copy. The problem is half the shadow cabinet have been sent off to re-education," Osborne said of the Labour leadership.

In accompanying economic forecasts, the Office of Budget Responsibility predicted economic growth of 2.4 per cent this year, 2.4 per cent in 2016, and 2.5 per cent in 2017.

- AP