George Osborne has achieved the savings he wanted - just in a more subtle way

Richard Edgar

Former Economics Editor

George Osborne is the master of presentation. He manages expectations one way and then, with a flourish, presents a policy surprise in quite another direction altogether.

Yesterday’s Autumn Statement and Spending Review was a textbook example as the “Austerity Chancellor” suddenly appeared to soften his stance as he cancelled the planned cuts to tax credits.

But just minutes after he sat down, there were clues that this might not be quite the U-turn some had hoped.

The OBR (official budget watchdog) published tables which showed how the cost of this generosity to the chancellor quickly melted away in later years - in other words, he was making the savings elsewhere.

Today the Institute for Fiscal Studies, a think tank whose experts worked through the night looking at the fine print in the chancellor’s proposals, explained how.

The key thing is that all working age benefits, including tax credits, are expected to be rolled into a new single benefit called Universal Credit, which will be less generous overall than the current system.

Tax credits had a limited shelf life. New claimants in years to come, who go straight on to Universal Credit, may find that they get less then than a family in an identical situation today.

So, just looking at working families, 2.6 million of them will be £1,600 a year worse off, on average.

But Osborne will claw the money he would have got from tax credits by reducing benefits. Credit: PA

The IFS explained these might be double income families, for example, who own their house.

However, it’s a complex picture and 1.9 million families will be £1,400 a year better off. These might be single earner couples, who are renting rather than owner occupiers, for example.

Collectively, under the future regime, new claimants will get £3.7 billion pounds less, which is the amount Mr Osborne was hoping to save with the tax credit cuts.

So over time, it means the chancellor makes up the savings he lost when he apparently did a U-turn on tax credits.

George Osborne outlined his Autumn Statement on Wednesday. Credit: PA Wire

One important thing to note is that apart from a very small number of those people already on Universal Credit (about 45,000 working families), nobody already claiming existing benefits today will lose out as they switch over from tax credits, housing benefits and so on.

Most people will simply be told their benefits have been rolled into Universal Credit.

The amount they receive will be protected in cash terms: they won’t get less than they do now, but they might even get more.

This protection will gradually disappear as inflation eats it away, but it could take many years.

Mr Osborne has managed to achieve what he wanted - less generous welfare payments, and a clear incentive to encourage people back into work, but he’s doing it in a more subtle way. Blink and you miss it.