George Osborne: tax credits u-turn was not sign of weakness

Mr Osborne - who was forced to rethink his plans after they were rejected by the House of Lords last month - insisted his move was an indication that he was listening to voters' concerns.

"I don't think it's a weakness, if you are doing this job, to listen to people and listen to the concerns that are made," he told ITV1's Good Morning Britain.

Mr Osborne shrugged off suggestions that the Autumn Statement and Spending Review - in which he also announced he was protecting police budgets - amounted to a pitch for the job of Prime Minister.

"This job is absorbing and all-consuming, I'm 100% focused on that," he said. "We have got a very strong Prime Minister in David Cameron... I'm very proud to serve him and to do my best in this job to help working people in this country."

Despite his climbdown on tax credits, Mr Osborne insisted he remained committed to transforming the UK into a "lower-welfare, higher-wage" economy, through the introduction of universal credit and the national living wage.

Wednesday's statement confirmed that he still intends to cut the overall benefit bill by £12 billion by 2020.

The Chancellor told BBC1's Breakfast: "There have been essentially two arguments made to me. The first is that we can't and shouldn't cut our welfare budget at all. Frankly, I just don't agree with that and I don't think the British public agree with that.

"I think we do need to make savings to our welfare bill and these are long-term savings that enable us to spend more on house-building and on our NHS and on paying down our debt.

"Then there's an argument made to me, which is, 'Let's help families as we transition to this lower-welfare, higher-wage economy, let's take more time getting there'. That's what I did yesterday.

"But I think the end goal of a welfare system, including this new universal credit, which is much simpler, where it always pays to work, which is affordable for the country, is something which is right for Britain and for people who .... pay their taxes and rely on us getting that central judgement about what we can afford as a country right."

Shadow chancellor John McDonnell defended his decision to brandish a copy of Chairman Mao's Little Red Book in the Commons, maintaining it had allowed him to raise an important issue during what he said was normally an "extremely boring" debate.

In an interview with Good Morning Britain, the shadow chancellor said: "I was trying to draw attention to the fact, with a bit of irony, that actually what George Osborne is doing is selling off British assets to the Chinese People's Republic. Now I find that deeply ironic."

He added: "We are now debating one of the issues I wanted to raise. It worked."

Mr McDonnell said that producing the book, which he had from his days as a politics student, had been a "self-deprecating joke".

The shadow chancellor threw the book across the chamber to Mr Osborne during his response to the Autumn Statement and the Chancellor confirmed he had taken it back to the Treasury.

Speaking from a building site in Essex, the Chancellor told GMB: "I've got it on my desk at the Treasury now. I always think it's important to know what your political opponents are thinking and reading."

Asked if he would return the book to Mr McDonnell, Mr Osborne said: "I suspect he has got several copies at home, so I think I will hold onto this one."

Mr Osborne funded the tax credit u-turn and his decision to protect police budgets from a £27 billion windfall resulting from better-than-expected forecast tax receipts and rock-bottom debt interest rates.

But experts raised question marks over the additional cash which the Office for Budget Responsibility forecast will be available to the Chancellor.

The director of the independent economic thinktank the Institute of Fiscal Studies warned there was only a "50-50" chance of the revenue forecasts remaining so positive .

Paul Johnson said the Chancellor had been "quite lucky" but added "the public finance forecasts were not desperately rosy relative to where they were in July" at the time of the Budget and the revisions were "easily within the margins of error".

He told the BBC: "The risk for him, and this must be at least a 50-50 risk, is that the next time round, or the time after, or the time after, these tax revenue forecasts will look less rosy."

If that happened, the Chancellor would be forced to either cut spending or raise taxes in order to meet his target of bringing the public finances back into surplus by 2020.

The windfall came about because the OBR decided its old model for estimating VAT revenue was too pessimistic. Income from the sales tax by 2020 is now expected to be some £11.5 billion higher than previously forecast.

The OBR also revised up economic growth predictions - giving the Chancellor an extra £27 billion to play with during this Parliament and making his life considerably easier.

As he delivered his annual Autumn Statement and five-year Spending Review to the House of Commons, Mr Osborne insisted he would still be able to hit his target of eliminating the deficit and achieving a £10 billion surplus by 2020 while reducing the welfare bill by £12 billion over the period.

But he was forced to admit that he will breach his self-imposed welfare cap in each of the next three years as a result of the tax credit u-turn.

Only one element of the controversial tax credit cuts - a reduction from £5,000 to £2,500 in the amount of extra income a claimant can earn without losing benefits - survives from the Budget in July, when it was predicted to save the Treasury up to £250 million a year.

Mr Osborne imposed a levy on business worth 0.5% of employers' paybills to pay for three million apprenticeships, but said that all but the biggest 2% of companies will be exempted from the charge.

Other revenue-raising measures included a new 3% surcharge on stamp duty for the purchase of second homes and buy-to-let rental properties, while town halls will be allowed to raise council tax by 2% to pay for social care.