George Osborne has abandoned his plan to cut tax credits in a major U-turn that raised immediate questions over where he will find a promised £12 billion in welfare savings.
The chancellor made the announcement on Wednesday as he delivered his Autumn Statement and Comprehensive Spending Review, laying out the government's economic forecasts and spending plans for the next five years.
Osborne said an "improvement in public finances" meant that rather than phasing in the cuts, the government could scrap the plans altogether.
"The simplest thing to do is not to phase these changes in, but to avoid them altogether," he said. "Tax credits are being phased out anyway as we introduce Universal Credit. What that means is that the tax credit taper rate and thresholds remain unchanged."
The chancellor's plans to save £4.4 billion by cutting tax credits were thrown into disarray in October when he suffered a humiliating defeat in the House of Lords, which voted to put the changes on hold until he brought forward plans to mitigate the impact of the cuts on the worst off. At the time, Osborne and other Conservatives accused the Lords of sparking a constitutional crisis.
Shadow chancellor John McDonnell had promised Osborne that Labour would not attack him if he scrapped his tax credit plans altogether.
The change of policy was a recognition of the opposition to the cuts in parliament, according to Osborne's former chief of staff Rupert Harrison.
After Lords defeat, today's tax credit changes a tribute to GO's favourite rule of politics: you have to know how to count (hat tip LBJ)