Tory retreat on tax credits?

Submitted by Matthew on 16 November, 2015 - 3:15 Author: Matthew Thompson

Chancellor of the Exchequer George Osborne will set out the Government's tax and spending plans when he delivers the annual Autumn Statement to the House of Commons on 25 November.

As well as outlining how the Government intends to meet its target of cutting an extra £20 billion from public spending by 2019-20, the equivalent of Departmental budgets falling by between twenty-five and forty per cent over the next five years, Osborne is also expected to list ways in which the Treasury will look to minimise the impact of the £4.4 billion in cuts to tax credits paid to low-paid and part-time workers which he announced in the Budget in July.

Having been heavily criticised by the press over his plans to cut tax credits, not long after an election campaign in which the Tories presented themselves as the "workers party", standing up for "strivers" against so-called "skivers" on benefits, and been attacked last month by Tory backbenchers in an Opposition day debate on the issue in the House of Commons before losing a vote in the House of Lords on the statutory instrument which would have brought in the changes next April, Osborne promised to listen to the concerns expressed by his Parliamentary colleagues, although at the same time Downing Street officials briefed journalists floating the idea of the Government creating hundreds of new Tory peers to push the measure through, a threat unheard since the Liberal government before the First World War had its "People's Budget" blocked by Tories in the upper house.

It is unlikely that Osborne will signal an open U-turn on his plans to cut tax credits in the Autumn Statement next week. It is much more likely that he will tweak taxes in other areas to lessen the impact of the upcoming drop in the incomes of the lowest-paid workers. He could do this in a number of ways: by speeding up the introduction of a higher personal allowance for Income Tax, due to rise to £10,600 next April and to £11,000 by 2017-18, by raising the lower earnings limit at which workers start paying National Insurance contributions on their wages (currently £111 a week), possibly bringing it into line with the new higher personal allowance for Income Tax, or a combination of the two. He could also bring forward the rate at which the new so-called "National Living Wage" he announced in this summer's Budget, due to come in at £7.20 an hour next April before rising to £9 an hour by 2020, will increase, although this would be unpopular with Tory-voting small business owners who are already unhappy about its introduction. It also almost inevitable though that what Osborne announces next week will reduce rather than off-set the impact of the cuts to tax credits he still intends to go ahead with.

Momentum, the grassroots movement set up to continue the "surge" which saw Jeremy Corbyn elected Leader of the Labour Party, is organising events across the country around the time of the Autumn Statement to protest at cuts to tax credits.

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