In a final flourish in the first Conservative-only budget in 19 years, the chancellor portrayed the Tories as the party of working people by declaring that the living wage will be introduced from next April at a rate of £7.20 an hour for people over the age of 25.
But campaigners for the living wage said the chancellor’s announcement amounted merely to an increase in the minimum wage, and said the curbs on tax credits would hit low-paid workers in other ways. The new living wage will rise at a relatively modest rate, reaching £9 an hour by 2020.
The chancellor had said before the election that he would aim to raise the minimum wage to £8 in this parliament, leaving him open to charges that he is merely rebranding the minimum wage, which was introduced by Tony Blair’s government after the 1997 election.
The announcement, in the final minutes of his budget, was qualified by an assault on the main measures to tackle poverty introduced by Gordon Brown from 1997. The chancellor will achieve a large chunk of his planned £12bn in welfare savings by imposing a four-year freeze on working-age benefits and a raft of changes that will see tax credits limited to the first two children.
Housing benefit will be withdrawn from those aged between 18 and 21, while tax credits and universal credit will be targeted at people on lower wages by reducing the level at which they are withdrawn.
Frances O’Grady, the TUC general secretary, said: “The chancellor is giving with one hand and taking away with the other. Massive cuts in support for working people will hit families with children hardest.
“The chancellor has finally woken up to the fact that Britain needs a pay rise ... For young people, it was all bad news as they will not get the minimum-wage boost and will suffer from cuts to higher education grants and housing benefit.”
Rhys Moore, director of the Living Wage Foundation, said: “Is this really a living wage? The living wage is calculated according to the cost of living whereas the Low Pay Commission calculates a rate according to what the market can bear.
Without a change of remit for the Low Pay Commission this is effectively a higher national minimum wage and not a living wWage.” Moore suggested that the freezing of tax credits suggested that the living wage proposed by the chancellor would have to be be raised even further to make up the difference.
“Do the tax credit changes announced today mean that the living wage needs to be higher to make sure people have enough?” Moore asked. The changes outlined by the chancellor will deliver £9bn of his planned welfare cuts, which are to be introduced over a longer period than Osborne’s original plan set out in his March budget.
The chancellor will deliver his overall budget surplus in 2019-20, a year later than originally planned in a process described by aides as “smoothing the profile”.
As one of the most acutely political chancellors, Osborne moved to protect himself from inevitable assaults from Labour that he is undermining efforts to reduce child poverty by raiding Ed Miliband’s general election manifesto.
The chancellor will end the right to inherit the special “non-dom” tax status, which allows beneficiaries who are resident in Britain to avoid UK tax on overseas income.
In changes that will net £1.5bn, the chancellor will also ban people who have been resident in the UK for 15 of the previous 20 years from claiming the special status.He also promised to phase out the controversial bank levy, which City banks, including HSBC, has complained makes them uncompetitive.
The levy will gradually reduce over next years; Instead, Osborne said he would charge an extra 8% on banks’ profits. The chancellor also reached out to Tory backbenchers by pledging to deliver a real-term increase in the defence budget every year. This allows him to commit to meeting the Nato target of spending 2% of GDP on defence throughout the current parliament.
Osborne spoke of how the budget would move Britain “from a low-wage, high-tax, high-welfare economy to the higher wage, lower tax, lower welfare country we intend to create”. The chancellor said he would take a major step to ending the so-called merry-go-round by announcing that the tax-free personal allowance would rise to £11,000.
This is designed to deliver a rate of £12,500, at which point a worker on the minimum wage working 30 hours a week would pay no tax. The chancellor also announced that he would encourage job creation – and introduce incentives for business to remove the need for tax credits with pay rises – by cutting corporation tax to 18% by 2020.
The tax was cut from 28% to 20% in the last parliament. In the final minutes of his budget the chancellor had to repeat his key lines on the new national living wage – for the benefit of the evening television bulletins – to ensure his headline measure was understood. In his second go, he said: “Let me repeat myself because I don’t think the other side heard it.
Britain deserves a pay rise and Britain is getting a pay rise. I am today introducing today a new national living wage.” The chancellor said the new living wage would achieve the government’s objective of ensuring that the low paid earned at least 60% of median earnings by 2020.
This was the minimum level of pay recommended by Sir George Bain, chair of the Low Pay Commission, in a report to the Resolution Foundation. In a wide-ranging statement, Osborne announced a blizzard of policies, including fresh tax cuts for companies; a four-year freeze on public-sector pay and a surprise tax raid on buy-to-let landlords.
On education, student grants will be replaced by loans from 2016-17, with loans repaid once one’s salary reaches more than £20,000, which Osborne said would save £1.6bn.Osborne boasted that Britain was now the fastest-growing major economy.
The latest economic forecasts from the independent Office for Budget Responsibility, published alongside the budget, point to GDP growth of 2.4% this year, down slightly from 2.5% at their last forecast in March.
Next year, the OBR expects GDP growth of 2.3%, unchanged from March. Osborne said he would smooth the path of austerity over the next five years, eliminating the “rollercoaster” spending plans that were widely criticised after his March budget.
Under these new plans, the public-sector finances will not move into surplus until 2019-20, a year later than previously expected.The deficit on the public finances will be £69.5bn this year, slightly lower than the £75bn the OBR expected in March. It will then be slightly higher than expected for the next three years, before swinging to a £10bn surplus in 2019-20.
“Britain has turned a corner and left the age of irresponsibility behind,” the chancellor said. Osborne delivered an unexpected blow for buy-to-let landlords, announcing that he would restrict the tax relief landlords can claim on their mortgage interest payments to the basic rate of tax.
He also made good on his manifesto pledge to introduce a new inheritance tax allowance for family homes, allowing an estate worth £1m to be passed on without any tax being levied.
He announced a series of plans aimed at boosting the productivity of Britain’s economy, including reforming vehicle excise duty and earmarking the money to upgrade the road network; and introducing a new apprenticeship levy on large firms to pay for training.
Corporation tax will be cut further, after a series of reductions in the past parliament. The rate, levied on company profits, will fall to 19% in 2019, and 18% in 2020.
Osborne also repeated his promise to build a “northern powerhouse”, to narrow the economic divide between London and the rest of the UK, announcing that he has reached agreement to devolve further powers, including children’s services and firefighting, to Manchester.
Osborne said public-sector workers, who have already faced a prolonged wage squeeze since the credit crisis, would see their pay rises capped at 1% for another four years.
theguardian.com
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