George Osborne has announced he is to scrap planned cuts to tax credits for millions of low-paid workers.

Unveiling his Spending Review in the House of Commons, the Chancellor said he could abandon the controversial cuts of £4.4 billion due to improvements in public finances.

He said he would still be able to deliver the promised £12 billion in welfare cuts over the next five years while balancing the books by the end of the Parliament.

The news was welcomed on Twitter by Scotland's First Minister Nicola Sturgeon, who wrote: "Well done to all who kept pressure on Chancellor to drop tax credit cuts. Now need to scrutinise housing benefit cuts." 

To Tory cheers, Mr Osborne told the Commons: "I've had representations that these changes to tax credits should be phased in. I've listened to the concerns. I hear and understand them.

"And because I've been able to announce today an improvement in the public finances, the simplest thing to do is not to phase these changes in, but to avoid them altogether."

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The surprise announcement came after the House of Lords threw out the original proposal for £4.4 billion of reductions to tax credits from April next year.

There had been speculation Mr Osborne would phase the cuts in instead. Scrapping them altogether will be welcomed by many Tory backbenchers who were uneasy with the plans.

The Herald:

George Osborne leaves the Treasury before delivering his statement 

The Chancellor said higher than predicted tax receipts and lower interest rates meant the Office for Budget Responsibility estimated that public finances would be £27 billion better off over the course of the Parliament than it forecast at the time of the post-election Budget in July.

The Chancellor said his Spending Review was designed to make Britain "the most prosperous and secure of all the major nations of the world".

He said Office for Budget Responsibility forecasts showed GDP growing "robustly every year", living standards rising and more than one million extra jobs being created over five years.

Michael Settle's analysis: "The rabbit out of the hat this year is George Osborne's U-turn on tax credit cuts, which is a major triumph for the House of Lords and gives Jeremy Corbyn a political victory. 

The Government's critics can rightly say that if it was not for them, then hard-pressed families would be facing a £1,300 cut in their incomes next year.

Mr Osborne effectively admits he got it wrong but can counter his critics by saying this is a listening government."

The OBR had also certified that the Government's economic plan will deliver on the commitment to reach a surplus by 2019/20 and reduce the debt to GDP ratio every year of this Parliament.

Mr Osborne said the outlook had been boosted by the combined effects of better tax receipts and lower debt interest, creating a £27 billion improvement in public finances compared to the July Budget.

The Chancellor rose to give his Spending Review and Autumn Statement to the House of Commons at 12.33pm.

Mr Osborne said the Spending Review was designed to make Britain "the most prosperous and secure of all the major nations of the world".

Four-year public spending plans are forecast to deliver a surplus as well as falling debt in every year that follows, said the Chancellor.

  • Welfare savings totalling £12 billion will be "delivered in full... in a way that helps families".
  • Since 2010, no economy in the G7 has grown faster than Britain, said the Chancellor.
  • Office for Budget Responsibility forecasts GDP of 2.4% in 2015, then 2.4% in 2016, 2.5% in 2017, 2.4% in 2018 and 2.3% in 2019 and 2020.
  • OBR forecasts that the economy grows "robustly every year", living standards rise every year and more than one million extra jobs will be created over five years, says the Chancellor.
  • OBR has certified that the Government's economic plan delivers on the commitment to reach surplus by 2019/20 and reduce debt to GDP ratio every year of this Parliament.
  • Debt forecast to be 82.5% of national income this year - down from 83.6% at time of July Budget.
  • Debt to fall to 81.7% next year, then 79.9% in 2017/18, 77.3% in 2018/19, 74.3% in 2019/20 and 71.3% in 2020/21.
  • Combined effects of better tax receipts and lower debt interest means a £27 billion improvement in public finances compared to July Budget.
  • The Government will borrow £8 billion less than forecast and spend £12 billion more on capital investments.
  • Tax credit taper rate and thresholds to remain unchanged, with a disregard of £2,500, avoiding changes all together.
  • Minimum income floor for Universal Credit to rise in line with the National Living Wage.
  • The Government will breach its welfare cap in the first years of this Parliament, but meet it in the later part.