Reality Bites for Osborne as Tax Credit Plan Shelved

Budgets and Autumn Statements typically bring references to “rabbits” being pulled from chancellor’s “hats”.

But, as Newsnight’s Political Editor Allegra Stratton observed, this time Osborne was forced to shoot one of the rabbits he’d revealed just a few months ago at the Budget.

This spending review will be remembered for The Great Tax Credit U-turn.

The controversial plan to curb benefits given to low-paid workers was shelved. Not reformed. Not delayed. Scrapped altogether. The policy didn’t survive the year. 

After the surprise general election victory, George Osborne was hailed as the man who could make the political weather.

But resistance to the tax credit policy – a storm of Osborne’s own making – was just too strong for the chancellor.

The combined strength of the House of Lords, Labour, the SNP, the Lib Dems and many of his own backbenchers overpowered the man in Number 11.

Cuts to police budgets were also dropped.

But, far from destroying the Chancellor’s much vaunted reputation for strategy, these two surprise decisions reinforce the impression of a man political to his fingertips.

At a stroke, two of Labour’s most promising lines of attack on the government have disappeared.

The Shadow Chancellor John McDonnell struggled to land his punches. 

An ill-advised section quoting Mao’s Little Red Book – to try to embarrass the Chancellor over his links to China – seemed to backfire.

On top of the more modest welfare changes and the reprieve for the police, the government also announced:

  More money for the NHS

 More money for affordable housing

 More money for capital spending on transport

 More money for energy research

  More money for mental health

At the same time, departmental budgets (the cost of the actual administration) were massively tightened and local authorities effectively told to raise council tax by 2% to fund social care.

Amid all the talk of austerity, public spending will actually RISE to £821 BILLION by 2020.

But at the same time the state’s share of the economy will FALL to just 35% (from nudging up towards 50% when Osborne first became Chancellor).

How will this seemingly impossible feat been achieved?

The answer is: only with a considerable amount of economic growth.

Without increasing economic momentum in the latter part of the decade, the target of moving from deficit to surplus will be pushed further into the future.

Today we saw a Chancellor prepared to take a hard but (he will calculate) short term political blow, in the hope of ultimately moving towards his destination.

But with borrowing still set to exceed £70 billion this year, there’s an awfully long way to go.