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 credits cuts.
Analysis from the independent Office for Budget Responsibility, published on Friday, suggested the changes to universal credit announced in the July budget would 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 planned cuts to tax credits he announced in July, after the House of Lords rejected them and 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 revised down its estimate of how much the tax credits cuts would have saved the exchequer, from £4.4bn next year to £3.4bn, after calculating 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 credits policy would have done.
Its analysis appeared to confirm the assessment of the Institute of Fiscal Studies immediately after 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 showing that universal credit would now be significantly cheaper than the tax credits system would give the Treasury a strong incentive to ensure it was 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.
But the shift to universal credit could still carry political risks for Osborne, he added. “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, the OBR chairman, is due to explain the changes to MPs next week when he appears before the cross-party Treasury select committee.
A Treasury spokeswoman said: “As the chancellor set out - and as the independent OBR has certified - we will still achieve the £12bn per year of welfare savings we have promised. That’s because of the permanent savings we have already made and the further long terms reforms we announced at the autumn statement.”
