UK's Osborne sticks to budget target, scraps cuts to tax credits

[November 25, 2015]  By William Schomberg and David Milliken

LONDON (Reuters) - British finance minister George Osborne surprised his critics by sticking with his budget surplus target for the end of the decade, even as he abandoned a controversial plan to make big savings in one part of the welfare budget.

Osborne told parliament on Wednesday that he was aiming for a surplus of 10.1 billion pounds by the 2019/20 financial year, slightly higher than a previous target announced in July.

He also said he was aiming to borrow less in the current financial year than estimated in July.

"We have committed to running a surplus," Osborne said.

"Today, I can confirm that the four-year public spending plans that I set out are forecast to deliver that surplus, so we don't borrow forever and are ready for whatever storms lie ahead."

Osborne attributed the improved outlook for Britain's finances to slightly higher economic growth forecasts in the next two years and lower debt costs than previously thought as yields on British government bonds stay low.

Turning Britain's budget deficit into a surplus was central to Prime Minister David Cameron's pitch to voters in May's election and, if achieved, would help the ruling Conservative Party to cut income taxes before the next election due in 2020.

Osborne, who is a leading contender to succeed Cameron, said he was dropping one of his ideas for big savings -- cuts to tax credits for low-earning households. The proposal provoked a rare rebellion in the upper house of parliament last month.

"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," he said.

Osborne said he planned to make savings in the welfare budget from housing benefit payments for future claimants and total savings from welfare would remain at 12 billion pounds by the end of the decade.

(Editing by Guy Faulconbridge)

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