Osborne scraps tax credits cuts in surprise welfare U-turn

Labour said the handling of tax credits had been a "fiasco" and cuts being transferred to Universal Credit meant "this is not the full and fair reversal that we pleaded for".

The Chancellor was able to make his surprise move because of a £27 billion windfall from better-than-expected tax receipts and rock-bottom debt interest rates.

In his Autumn Statement and Spending Review, the Chancellor also sought to embarrass Nicola Sturgeon and the SNP by highlighting the dramatic slump in oil and gas revenues.

“Of course, if Scotland had voted for independence, they would have had their own spending review this autumn,” he told MPs. “With world oil prices failing and revenues from the North Sea forecast by the Office for Budget Responsibility to be down by 94 per cent, we would have seen catastrophic cuts to Scottish public services.”

To Tory cheers and Nationalist frowns, he declared: “Thankfully, Scotland remains a strong part of a stronger United Kingdom.”

Last year, revenue from the North Sea was £2.2bn. The latest forecast over the next six years is for a cumulative total of just £900 million.

In a packed Commons chamber, Mr Osborne told MPs he would still be able to hit his target of eliminating the deficit and achieving a £10bn surplus by 2020 while reducing the welfare bill by £12bn over the period.

But he was forced to admit that he would breach his self-imposed welfare cap in each of the next three years as a result of the tax credit U-turn forced upon him by last month's defeat in the House of Lords.

Mr Osborne imposed a levy on business worth 0.5 per cent of employers' pay-bills to pay for some three million apprenticeships across the UK but noted how all but the biggest two per cent of companies would be exempted from the charge.

The squeeze on Whitehall departments continues with an average real-terms cut of 3.3 per cent over the five-year Spending Review period.

However, if the protected areas such as the NHS, schools, defence and overseas aid are excluded, then the average reduction in day-to-day spending is a more daunting 19 per cent with Transport at 37 per cent and the Treasury at 24 per cent among the worst hit.

According to the Scotland Office, the knock-on effect for the Scottish Government is that the capital funding budget will increase in real terms by 14 per cent over five years ie by £1.9bn. But the revenue budget will fall over the period by five per cent or 1.3 per cent a year in real terms.

David Mundell, the Scottish Secretary, insisted: “This is a very good settlement for Scotland. The capital budget for these five years is £16.5bn and my message to the Scottish Government is that, we have relentlessly heard in recent times about all these shovel-ready projects in relation to new infrastructure and construction; it’s time to get shovelling.”

But IPPR Scotland claimed Holyrood faced an "enormous challenge" as the Scottish budget would see a real terms cumulative cut of 3.9 per cent.

Russell Gunson, the think-tank's director, said: “The UK Government has confirmed our fears of real terms cuts to Scotland over the next four years. These spending cuts would be enough of a challenge for the Scottish Parliament; however, coming on the back of five years of similar cuts, the challenge looks enormous. With commitments made by the Scottish Government to increase spending on the NHS, affordable housing and childcare in Scotland, then non-protected departments could see billions of pounds of cuts over the coming years."

Stewart Hosie for the SNP insisted Mr Osborne’s ideology of cuts had not changed and that Scotland still faced the “horror of a decade of austerity that we never voted for”.

During his statement, the Chancellor won loud cheers from the Tory backbenches as he announced that, rather than phasing in the £4.4bn tax credit changes as expected, he was going to "avoid them altogether".

But Mr Hosie described the move as a “complete and humiliating U-turn”, which showed the SNP had been “right to keep the pressure up to the last minute”.

Ian Murray, the Shadow Scottish Secretary, described the Chancellor’s volte-face as a “significant victory for Labour” and that working families could sleep easier.

In the chamber, the Chancellor earned his loudest cheer when, against expectations, he announced now was not the time to cut police budgets.

"The police protect us and we're going to protect the police," he declared.

John McDonnell, the Shadow Chancellor, questioned whether Mr Osborne would be able to deliver on his package, telling MPs: "Over the last five years there has barely been a target the Chancellor has set he hasn't missed or hasn't ignored."

But the Labour frontbencher was howled down by Tory backbenchers after producing a copy of Chairman Mao's Little Red Book and suggesting Mr Osborne could learn from the Chinese revolutionary.

Earlier, the Chancellor told MPs that Office for Budget Responsibility forecasts showed GDP growing "robustly" every year, living standards rising and more than one million extra jobs being created over five years.

The borrowing forecast for this year was cut from £74.1bn to £73.5bn with the Government still predicted to achieve a surplus of £10.1bn by 2019/20.

Mr Osborne confirmed plans to double the house-building budget in England with spending partly funded by a new three per cent surcharge on stamp duty for the purchase of second homes and buy-to-let rental properties.

He ended his statement with a rhetorical flourish, saying the Tory Government were the "guardians of economic security, the protectors of national security, the builders of our better future...the mainstream representatives of the working people of Britain”.