Osborne springs living wage surprise while cutting tax credits

Hailing a new “higher wage, lower tax, lower welfare” Britain, the Chancellor said from next April everyone over 25 would be entitled to £7.20 an hour – and the figure would rise to £9 by 2020.

Some six million people will see their pay increase as a result – and those currently earning the minimum wage of £6.50 an hour will be £5,000 better off by 2020, he claimed.

Mr Osborne said he was following the Conservative tradition as the party that brought in protections for mill workers during the industrial revolution.

“Taken together with all the welfare savings and the tax cuts in this Budget, it means that a typical family where someone is working full-time on the minimum wage will be better off,” Mr Osborne told MPs.

But acting Labour leader Harriet Harman responded by claiming the Budget was “making working people worse off” by cutting tax credits for the low paid and grants for students from poorer backgrounds.

The announcement was the final flourish in an audacious package of reforms which amounted to the biggest shake-up in welfare for decades.

Mr Osborne took an axe to tax credits, declaring that families will only receive the handouts and Universal Credit payments for the first two children.

People under the age of 21 will no longer be automatically entitled to housing benefit, all working age benefits will be frozen for four years, and social rent payments will be cut 1% every year until 2019.

He also confirmed that the benefits cap is being reduced from £26,000 to £23,000 in London and £20,000 in the rest of the country.

Student grants are being scrapped and replaced by loans to save £1.6 billion.

But the Chancellor also took advantage of a windfall from higher-than expected tax revenues to slow the pace of the £12 billion welfare reductions – saying the annual cut will not be fully implemented until 2019-20, two years later than previously planned.

Austerity cuts have also been slowed in response to concerns from international bodies such as the OECD, and the Government is not now due to meet Mr Osborne’s target of an absolute surplus until 2018-19 rather than 2017-18.

Mr Osborne pointed to the crisis in Greece to argue that spending cuts and a “new settlement” were essential.

“Britain still spends too much, borrows too much, and our weak productivity shows we don’t train enough or build enough or invest enough,” he said.

“This is the new settlement. From a one-nation Government, this is a one-nation Budget that takes the necessary steps and follows a sensible path for the benefit of the whole of the United Kingdom.”

The OBR has forecast that the new living wage – Mr Osborne’s retort to critics who have suggested he is not helping working people – will result in 60,000 fewer jobs, but the impact will be reduced because of corporation tax being cut to 18% by 2020.

The main announcements in the July 2015 Budget included:

:: A new compulsory National Living Wage for working people aged 25 and over, starting in April 2016 at £7.20 an hour and reaching £9 an hour by 2020.

:: The Office for Budget Responsibility downgraded growth forecast for 2015 from 2.5% to 2.4%, then 2.3% in 2016, then revised it up to 2.4% in 2017 and for rest of decade.

:: Forecast for paying down the national deficit and running a surplus knocked back by a year from 2017/18 to 2018/19.

:: New Fiscal Charter committing the country to running an overall budget surplus in normal economic times – when real GDP growth is lower than 1% a year.

:: Corporation tax to be cut from 20% to 19% in 2017 and 18% by 2020.

:: Tax-free personal allowance at which 20p income tax rate is payable raised from £10,600 to £11,000 next year. Rates of income tax remain unchanged.

:: Higher rate 40p income tax threshold to rise from £42,385 to £43,000 from next year.

:: Rises in public sector pay restricted to 1% per year for the next four years.

:: Package of welfare reforms cutting £12 billion from the system, including four-year freeze for working-age benefits.

:: Reduction from £6,420 to £3,850 in income level at which tax credits begin to be cut, with increase in taper rate at which the benefit is removed.

:: Support for children through tax credits and universal credits to be limited to two children, affecting children born after April 2017.

:: Benefits cap to be reduced from £26,000 per household to £23,000 in London and £20,000 in the rest of the country.

:: Social housing tenants earning more than £40,000 in London and £30,000 elsewhere to pay rent at market rates.

:: Abolition of automatic entitlement to housing benefit for 18 to 21-year-olds.

:: Rate of Employment and Support Allowance aligned with Jobseekers’ Allowance for new claimants deemed able to work.

:: Rents in the social housing sector to be reduced by 1% a year for the next four years.

:: Permanent non-dom tax status to be abolished.

:: Inheritance tax reform to allow estates worth up to £1 million to be tax-free if they include a home.

:: Britain committed to meeting Nato target of spending 2% of GDP on defence for rest of this decade, while the Ministry of Defence is guaranteed real-terms increases in its annual budget.

:: New bands for vehicle excise duty for brand new cars from 2017 – with most cars paying £140 standard charge. No change to VED for existing cars. All income from VED to go into new Roads Fund to pay for investment in the network.

:: Climate Change Levy exemption for renewable electricity to be removed.

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