Britain swings austerity axe but drops tax reform

Britain took the axe to spending Wednesday, fleshing out plans to slash welfare and eliminate the deficit, but dropped a controversial plan to cut tax credits for the poorest.

The country's Finance Minister George Osborne spelled out his proposals for £12 billion (17 billion euros, $18 billion) of cuts to welfare spending and £20 billion of reductions to public expenditure, while raising £5.0 billion via a crackdown on tax avoidance.

But in a budget update to parliament, Chancellor of the Exchequer Osborne performed a major U-turn to reverse his plans to axe tax credits, which are a state benefit for those on low incomes, following widespread accusations the changes would be harmful.

"I've listened to the concerns. I hear and understand them," he told lawmakers to loud cheers.

"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."

In recent months, Osborne had faced stiff opposition from even within his own Conservative Party over cuts to welfare and other social spending that some see as too swingeing.

Prime Minister David Cameron's Conservative government suffered a humiliating defeat last month when Britain's upper chamber of parliament the House of Lords rejected plans to cut tax credits.

The opposition Labour Party has also fiercely opposed the tax credit changes under the leadership of new head Jeremy Corbyn.

Elsewhere on Wednesday, Osborne vowed to eliminate Britain's deficit, moving "out of the red and into the black" with a higher-than-expected surplus of £10.1 billion in 2019/2020 -- the end of the current parliament.

"Our job is to rebuild Britain ... so that Britain becomes the most prosperous and secure of all the nations in the world," added Osborne, who is widely seen as a potential successor to Cameron.

"We are committed to running a surplus. We are ready for whatever storms lie ahead," he said.

He stressed that welfare savings totalling £12 billion would be "delivered in full" under the plan.

Osborne sweetened the spending review by announcing an affordable house building programme, amid complaints that demand for Britain's meagre housing stock has priced many properties out the reach of all but the wealthiest.

"I am doubling the housing budget to £2.0 billion a year," he said.

The government would build 400,000 affordable homes in the "biggest house building by any government since 1970s", Osborne added.