Osborne’s climbdown puts reform back months

GEORGE osborne staged a major climbdown on tax-credit reforms last night as it emerged the cuts were likely be implemented several months later than planned.

The cuts had been due to come into force in full next April, with millions of households expecting ‘Christmas letters’ outlining how much they would lose.

But yesterday Downing Street admitted these letters would be delayed until well into 2016 – suggesting the introduction of reforms will be pushed back beyond April.

it means the expected £4.4billion-ayear savings – with more than 3million families losing an average of £1,300 a year – could be smaller than expected or take longer to materialise.

Addressing MPs yesterday, the Chancellor pledged to ‘lessen’ the impact of his changes.

He said he would respond to Monday night’s defeat of his policy in the Lords by introducing ‘transitional help’ for poorer families affected. But he vowed to press on with his £12billion welfare-bill reduction.

He said: ‘We will continue to reform tax credits and save the money needed so that Britain lives within its means, while at the same time lessening the impact on families during the transition. i will set out the plans in the Autumn Statement. We remain as determined as ever to build the lowtax, low-welfare, high-wage economy that Britain needs and the British people want.’

The Autumn Statement will be on November 25 – days before the letters were due to go out. The Prime Minister’s spokesman said: ‘Clearly any reform to the tax-credit system would need to be in place before the letters detailing the changes go out.’

Mr osborne’s talk of transitional help indicates cuts may be phased, rather than households losing thousands in one go. Another option believed to be under consideration in the Treasury is increasing the personal tax allowance to help lower-paid families, or changing the national insurance regime. The Treasury said no details would be announced until the Autumn Statement.

Yesterday Labour MP Frank Field, chairman of the Commons’ work and pensions select committee, said: ‘There are a number of proposals. one that i put forward was that you raise the tax thresholds so that the very poorest are covered.

‘Another proposal is to keep the proposals as they are but you phase them in so you don’t get your full savings until the very end of the Parliament instead of delivering the £4billion-plus next April. And i think there’s certainly another proposal which is well worth the Chancellor looking at, and that is to leave existing claimants as they are, but you start applying the reforms in April to new claims.’

Labour yesterday called on Mr osborne to instead abandon reductions to inheritance tax for the betteroff, as well as corporation tax.

Speaking in Treasury questions, Shadow Chancellor John McDonnell told Mr osborne that Labour would applaud a move to ‘reverse the cuts to tax credits fairly and in full’.

He also urged the Chancellor to scale back the size of surplus he is aiming to run by the end of the Parliament. Mr osborne said he would listen to any proposals Mr McDonnell had ‘to help in the transition’ to lower tax credits, but said: ‘if he is again promoting uncapped welfare and unlimited borrowing, then i’m afraid i don’t think the British people are going to listen to him.’