What the Autumn Statement Means for Tax Credits
I think it’s fair to say that in most years, the chancellor’s Autumn Statement drifts by without the average man on the street taking much note of it.
There may be a tax freeze here or an increase to a taxable allowance there, but nothing that is likely to make a huge difference to the lives of a lot of people in the country, and nothing that is likely to grab the interest of the majority of the nation.
This year was a little different, though. This year there was one extremely big issue on the minds of people all over the country, an issue that would lead them to switch on their television sets and radios en masse to listen to the chancellor’s statement with intent, and that was the issue of tax credits.
In his budget announced in back in July, the chancellor outlined plans to massively reform the current tax credits system. His proposed changes included capping the number of children you could claim tax credits for to just 2 children. He also wanted to reduce the income threshold for tax credits from £6,420 to £3,850, effectively reducing the amount being paid to those in receipt of the benefit. As you will likely have noticed over recent months, these plans did not go down too well with most, and in October they were eventually delayed by the house of lords. So what would the chancellor do about these controversial plans?
Well, this proved to be one of the main points of note to come out of the Autumn statement this year. Many people were expecting that the chancellor would tweak his plans in some way in order to take away some of the pain for families, but still allow him to push ahead with his changes. As it turned out, the chancellor took everyone by surprise and scrapped his plans to make changes to the tax credits system altogether, which will be welcome news to many hardworking families across the country.
The story won’t end here, of course. Plans to replace the tax credits system with the new – and what many consider to be less generous – ‘Universal Credit‘ system are still due to go ahead. For now though, there is some temporary relief from the imminent financial pain that was due to hit many families.
How could he afford the u-turn?
You may be wondering how the chancellor has been able to afford to make such a big policy u-turn? Especially when he spent so much time convincing people that if he was ever going to bring the the finances of the country back in line, the changes were badly needed.
Well, the truth is that the chancellor got an unexpected windfall to the public purse, a windfall which came just in time for the Autumn statement. The windfall came from forecasts by the Office for Budget Responsibility (OBR) forecasting that the treasury would receive a lot more income from tax receipts over the coming few years, around £18 billion by the year 2018, in fact.
So, while this extra money has allowed the chancellor to reverse his original decision to cut tax credits for the time being, it is worth remembering that he may face a battle all over again when Universal Credit is rolled out more fully in the not so distant future.
Main image by Altogetherfool @ Flickr.
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