LONDON • Mr George Osborne, the British Chancellor of the Exchequer, abandoned a plan to cut welfare benefits, making a significant retreat in his drive to shrink the British state and balance its budget.

Confronted by formidable opposition, Mr Osborne scrapped his proposed limits on payments available to millions of people in low-paid work. But the move was a switch in tactics, not in strategy, from one of Britain's most ambitious politicians.

Mr Osborne promised to stick to his overall financial targets, and he said that £27 billion (S$57 billion) from strong tax receipts, and low borrowing costs would help the country avoid cutting front-line services like the police.

Britain has a large budget deficit, relatively high public debt and low productivity. These have prompted the government to constrain its spending for years. Mr Osborne announced in July, two months after the Conservative Party won enough seats in the House of Commons to govern without a coalition partner, that he planned to squeeze spending for the next few years, aiming to turn the budget deficit to a surplus by the 2019-20 fiscal year.

But the House of Lords, complicated his plans last month by rejecting his proposals to limit the tax credits paid to people who earn very low wages, saving £4.4 billion.

On Wednesday, Mr Osborne acknowledged that his plans had aroused widespread opposition and said he had decided not to try to impose them, even gradually. The decision was a victory for the opposition Labour Party, which had campaigned vigorously against the cuts, saying they would harm about three million people.

NEW YORK TIMES