The Labour party has seized on new costings of George Osborne’s welfare reforms to argue that he still plans to take £3bn a year out of the pockets of Britain’s poorest families, despite reversing his controversial tax credit cuts.
Analysis from the independent Office for Budget Responsibility, published on Friday, suggested that the changes to universal credit announced in the July budget will save the chancellor close to £3bn by 2019-20.
“Labour warned last week that George Osborne’s U-turn on tax credits might not be all it seemed and today’s report from the OBR shows it was a total con job,” said Owen Smith, Labour’s shadow work and pensions secretary.
Osborne was forced to cancel the cuts to tax credits that he announced in July, after the House of Lords rejected them, amid disquiet from anti-poverty campaigners and Tory backbenchers.
But the chancellor left in place similar changes to the universal credit system, which is due to replace tax credits, and will now be significantly cheaper.
In his autumn statement speech, the chancellor said, “the simplest thing to do is not to phase these changes in but to avoid them altogether”; but he added: “Tax credits are being phased out anyway as we introduce universal credit.”
The OBR said it had also revised down its estimate of how much the tax credit cuts would have saved the exchequer, from £4.4bn next year to £3.4bn, after totting up knock on effects such as the resulting increase in the housing benefit bill.
The OBR’s new costings show that by 2021, the changes to universal credit will save the Treasury almost as much each year as the controversial tax credit policy would have done.
Its latest analysis appeared to confirm the assessment of the Institute of Fiscal Studies in the immediate aftermath of the autumn statement, that, the “long term generosity of the welfare system will be cut just as much as was ever intended, as new claimants will receive significantly lower benefits than they would have done before the July changes”.
The IFS predicted that 2.6 million working families would still lose an average £1,600 as a result of the changes, while 1.9 million would be better off by £1,400.
Torsten Bell, the chief executive of the Resolution Foundation, said the figures showed that universal credit will now be significantly cheaper than the tax credits system would give the Treasury a strong incentive to ensure it is rolled out successfully.
“For the first time the balance has tipped and putting universal credit into place will actually save the Treasury money,” he said.
He added that the shift to universal credit could still carry political risks for Osborne. “Rolling it out involves making real the losers from the [Treasury’s] decision to push ahead with cuts. And it involves doing so in the run up to a Conservative Party leadership election and then general election.”
The chancellor was able to pay for his tax credits U-turn, because the OBR significantly increased its forecasts for tax revenue, by a total of £27bn over the parliament. Robert Chote, OBR chairman, will explain the changes to MPs next week when he appears before the cross-party treasury select committee.
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