Planned cuts to tax credits announced in the the summer's Budget will not go ahead, George Osborne has said.
The Chancellor announced in his Autumn Statement to the House of Commons that the taper on the in-work benefits would stay the same, effectively cancelling the largest part of the planned cuts.
The changes to the benefits were planned to save the Government £4bn a year and were a significant part of planned £12bn cuts to social security announced in the Conservatives’ manifesto.
Before the election the Conservatives however refused to explain exactly where the cuts would fall.
The tax credit cuts would have hit the working poor hardest and damaged work incentives, according to the Institute for Fiscal Studies.
The Chancellor was forced into a climb-down on tax credits after a defeat in the House of Lords on the statutory instrument containing the cuts.
He had previously said he would mitigate their effects but indicated that they would go ahead.
The new Universal Credit benefit system is likely to contain the cuts when its roll out to replace tax credits is complete, however.
“I’ve had representations that these changes to tax credits should be phased in, he said. I’ve listened to the concerns. I hear and understand them," he said.
“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.
“Tax credits are being phased out anyway as we introduce universal credit. What that means is that the tax credit taper rate and thresholds remain unchanged.”
Effects of the cuts to Tax Credits
The Chancellor however said he would continue to go ahead with his flagship £12bn welfare cuts, meaning money will be taken from elsewhere in the social security budget.
The Government originally insisted that people who lost out from the cuts would benefit from the National Living Wage, but an analysis by the Institue for Fiscal Studies found that the rise in the minimum wage would come "nowhere near" to cancelling out any losses.
The Resolution Foundation also said 200,000 children would be driven into poverty by the cuts overnight.