Chancellor says he will respond to Lords defeat with new measures in his autumn statement and declines to rule out lowering surplus target

George Osborne has formally committed himself to “lessening” the impact of his proposed cuts to tax credits on families after peers voted to delay the cuts until the government compensates low earners.

The chancellor said he was determined to press ahead with the changes to tax credits but added that he would respond to the vote in the Lords by outlining in his autumn statement next month measures to soften the impact of the cuts.

The remarks by Osborne in the Commons came as Downing Street prepared to set out the terms of a review which is designed to uphold the convention that the upper house cannot challenge financial matters decided by MPs.



Labour and Liberal Democrat peers said they had not challenged the constitutional convention that the Commons has absolute supremacy on financial matters because the tax credit cuts had not been formally designated as a financial measure. The cuts were instead introduced through a statutory instrument. The review is also designed to ensure that the Lords cannot reject statutory instrument.

The Commons Speaker, John Bercow, suggested that peers had acted within the rules, telling MPs: “Nothing disorderly has occurred. There has been no procedural impropriety.”

The tough stance adopted by Downing Street on the future of the House of Lords contrasted with the chancellor’s emollient tone as he made clear he would address the concerns raised by peers. The successful motion tabled in the upper house by the former Labour social security minister Lady Hollis refused to approve the tax credit cuts until the government delivered a “scheme for full transitional protection for a minimum of three years for all low-income families and individuals currently receiving tax credits before 6 April 2016”.

Osborne told MPs: “We will continue to reform tax credits and save the money needed so that Britain lives within its means while at the same time lessening the impact on families during the transition. I will set out the plans in the autumn statement. We remain as determined as ever to build a low-tax, low-welfare, high-wage economy that Britain needs and the British people want to see.”

The chancellor did not say how he would soften the impact of the cuts. But he declined to rule out lowering his surplus target. Osborne announced in his budget in July that he planned to deliver an overall surplus of £10bn by 2019-20. In the last parliament he adapted his deficit reduction plans when the economy stalled.

The possibility that Osborne could adopt a flexible approach surfaced when John McDonnell, the shadow chancellor, asked him whether he would adopt a “less excessive surplus target”.



McDonnell said: “The chancellor has a choice before him. He can push on with the tax giveaways to multinational corporations. He can press on with tax cuts to the wealthiest few in inheritance tax that he announced in his summer budgets. Or he can reverse those tax breaks for the few and instead go for a less excessive surplus target in 2019-20 and be in a position to avoid penalising the 3 million working families with these tax credit cuts, and stick to his self-imposed charter. Is he prepared to listen to reason on this matter? Is he willing, or is anyone on that side prepared to step up and show some leadership on this issue?”

Osborne did not rule out lowering his surplus target and instead incorrectly suggested that McDonnell was calling on him to abandon his target altogether. The chancellor said: “I would say this to him. He in a way reveals what he believes, which of course I completely respect, which is he says, ‘Abandon your surplus rule, run a deficit forever.’ I profoundly disagree with that central judgment. I think if you borrow forever, if you are not prepared to make difficult decisions on welfare, you are going to condemn this country to decline. And that means that as a result people are going to become unemployed and living standards are going to fall. That is not the Britain I want to see.”

Downing Street is expected to set out more details on the rapid review of the Lords later on Tuesday aimed at making the second chamber “respect” the will of the Commons on financial matters.



“To have measures go through that were voted on by elected MPs, and have been stopped, clearly the prime minister wants to look at how to address that,” David Cameron’s official spokeswoman said.



She could not confirm that letters setting out how much people would lose in tax credits would still go out before Christmas or if any changes would happen in April.

Asked whether Cameron still had full confidence in his chancellor, she

said he “absolutely” did and stressed that the two had worked very

closely throughout on the plans for tax credits.

The exchanges came after the leader of the Commons, Chris Grayling, responded angrily to the government’s defeat in the Lords, telling BBC Radio 4’s Today programme on Tuesday: “I think this is all about Labour and Liberal Democrat peers in the Lords who are unhappy that they lost the election – the Lib Dems have eight MPs and 100 peers – deciding they want to wreck the government’s programme.”

He added there would have to be a change in the relationship between the two houses.