Some budgets are a collection of seemingly unconnected policies, thrown together in haste to meet short term pressures and the demands of lobbyists.
Whether you like it or not, George Osborne’s 7th budget (and his second this year) had a coherent and radical argument holding the package together.
The Chancellor said the government wanted to move from a “low wage, high tax, high welfare” economy to “high wage, low tax and low welfare”.
Today we found out how he plans to begin that process.
The clarity of the political strategy will leave a weakened Labour party struggling to find a clear voice.
Indeed Harriet Harman, in her immediate budget response, appeared to accept that her party may not be able to oppose some of the measures.
The big rabbit out of the hat was a new compulsory National Living Wage – which will be £9 an hour by 2020.
This is, though, something of a repackaging and boosting of the existing Minimum Wage (currently £6.50/hour).
Osborne’s Living Wage begins at £7.20 an hour next April. Given that the Chancellor had previously talked about a £7 minimum wage in 2015 – it may appear rather more dramatic than it eventually turns out to be.
Still, it will be a major cost for business. Offset in part by changes to national insurance and significant cuts to corporation tax.
As a political manoeuvre, the Living Wage plan electrified the House of Commons.
Welfare Secretary Ian Duncan Smith was seen punching the air and shouting “fantastic”. The opposition benches were stunned into silence.
A few minutes earlier, a wall of noise from Labour and the SNP had forced the Chancellor to break his speech on several occasions.
Limiting tax credits to those with two children, squeezing housing benefit and social rents (on top of the “bedroom tax” and all of the measures announced in the last parliament), and hugely significant changes to Employment Support Allowance – all deeply controversial.
In total, Osborne will be cutting welfare by £12 billion.
The announcements were even more politically charged, coming as they did straight after dropping inheritance tax on homes up to £1m, and a big middle class tax cut.
A green paper could also herald major pension changes to come – with the possibility of significant further changes to future tax relief.
As always, there’ll be lots in the budget that isn’t immediately apparent. Let the analysis of the small print begin!
“A Budget that sets out a plan for Britain for the next 5 years to keep moving us from a low wage, high tax, high welfare economy; to the higher wage, lower tax, lower welfare country we intend to create.”
FINANCIAL SERVICES AND BUSINESS
- HMRC budget will be increased by £750m. £7.2bn to be raised from clampdown on tax avoidance and tax evasion
- Corporation tax to be cut to 19% in 2017 and 18% in 2020, and payment dates will be brought forward
- Gradual reduction of the bank levy over the next 6 years, after which it will not apply to a bank’s worldwide balance sheet
- Introduction of 8% surcharge on bank profits, commencing from 1 January 2016
- Creation of new tax-free allowance on dividends, set at £5,000.
- Insurance premium tax will be raised to 9.5% from November
- Annual investment allowance for small and medium sized business set at £200,000
- National Insurance employment allowance for small firms to be increased by 50% to £3,000 from 2016
“Please do not be fooled by a rebranding of the minimum wage. They’ve stolen our policy”
CHRIS LESLIE, SHADOW CHANCELLOR
OTHER MEASURES OF INTEREST
- Introduction of a new national living wage for all workers aged over 25 to reach £9 by 2020
- Personal allowance, at which people start paying tax, to rise to £11,000 next year
- The point at which people start paying income tax at 40p to rise from £42,385 to £43,000 next year
- Tax credits and Universal Credit to be restricted to two children
- Working-age benefits to be frozen for four years
- Green Paper published on proposals for "a radical change" to pension saving system
- Annual tax relief on pension contributions to be limited to £10,000 a year
- Permanent non-dom status to be abolished - from April 2017
- New apprenticeship levy for large employers
- Student maintenance grants to be replaced with loans from 2016-17
- Government to spend 2% of GDP on defence every year, meeting NATO target
PROPERTY AND INFRASTRUCTURE
- Creation of new Vehicle Excise Duty bands on all new cars worth over £40,000
- Creation of a new roads fund, all monies raised through VED will go into the fund
- Fuel duty to remain frozen this year
- From April 2017, the system that allows Buy-to-Let landlords to offset mortgage interest payments against their income will be phased out
- Rent a room relief rate will be raised to £7,500 in 2016
- From 2017 a new inheritance tax allowance of £175,000 will be phased in, on top of the current £365,000 threshold.
- Parents will be able to pass on property to their children tax-free up to the value of £1 million
- Rents in social housing sector will be reduced by 1% a year for the next four years
- Control over fire services, planning and children's services to be handed to a consortium of 10 councils in Greater Manchester
- Discussions on devolution of services to Sheffield, Liverpool and West Yorkshire are taking place
- £30m has been allocated for a new body to promote integrated transport - including use of Oyster-style cards - in the north of England
- Enterprise zones for smaller towns to be set up
- A consultation will take place on changing Sunday trading laws, and giving councils the power to decide on them