Chancellor George Osborne has today delivered the summer 2015 Budget, the second Budget of the year and the first purely Conservative budget since November 1996. Osborne stressed that the budget was one which “sets out a plan for Britain for the next five 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.” The Chancellor was also keen to emphasise that whilst the economic condition of Britain was substantially sounder than five years ago and that UK had “left the age of irresponsibility behind”, there was still work to do.
Osborne stated that he wished to bring down the deficit at the same rate as over the 2010-15 period, with a surplus in 2019/2020 – a later point than had previously been projected. He also announced the publication of a new ‘Fiscal Charter’ that would force governments to run a surplus during times of normal economic growth. The Office for Budget Responsibility forecasts growth for the UK economy in 2015 at 2.4 per cent, and 2.3 per cent in 2016, with it revised up to 2.4 per cent in 2017, 2018 and 2019.
The Budget announced £17bn of measures to eliminate the deficit – £12bn of welfare cuts £5bn in tax avoidance crackdown and – with the remaining £20bn to be set out in the Spending Review this autumn. However, the welfare cuts will be brought in over three, instead of the two years previously planned.
Below is a summary of the main policy announcements made in the Budget.
- A tax lock to prohibit increases in main rates of income tax, national insurance or VAT for five years will be legislated for in coming weeks
- Tax-free personal allowance will be raised from £10,600 to £11,000 next year, as a step towards a target of £12,500: the threshold will also rise in line with the minimum wage
- Threshold for 40p rate raised to £43,000
- Corporation tax to be cut from 20 per cent to 19 per cent in 2017 and 18 per cent in 2020
- Small firms’ NI contributions will fall, with a £3,000 employment allowance: as a result, a small firm can hire four staff on the national Living Wage and pay no national insurance
- A new National Living Wage to reach £9 per hour by 2020, compulsory for those over 25: it will start at £7.20 in April 2016, and be set then on by the Low Wage Commission, in line with the £9 target
- Public sector pay rises capped at 1 per cent for next four years
- Those on higher incomes in social housing will have to pay the market rate for their homes
- Working-age benefits will be frozen for four years, including tax credits and housing benefit, but excluding maternity pay and disability benefits
- Tax credit and universal credit support to be limited to first two children from April 2017
- 18-21-year-olds will not be entitled to claim housing benefit automatically
- Those earning more than £150,000 will have their tax-free contributions allowance tapered away from its current £40,000 per year to a minimum of £10,000
- The Government is consulting on a new ISA-style pension where savers pay tax on the income they put in, but not when they take it out
- Non-dom status no longer be inheritable and will only last for a maximum of fifteen years
- HMRC budget increased to counter tax-avoidance
- Vehicle Excise Duty being re-introduced for all brand new cars: there will be three duty bands – zero emission, standard and premium
- £30m for ‘Transport For the North’ organisation to integrate northern transport infrastructure
- Powers over fire services and childrens’ services to be given to Greater Manchester’s mayor
- Negotiations underway for similar arrangement in other cities, in exchange for the introduction of a directly elected mayor
- Interest-rate tax relief for buy-to-let owners to be restricted to basic tax rate
- From April 2017 there will be an extra £175,000 inheritance tax allowance for those who leave their homes to their children or grandchildren, on top of the £325,000 standard inheritance tax allowance currently
- Britain will meet the NATO commitment to spend 2 per cent of GDP on defence each year
- NHS will receive a further £8bn per year by 2020 (in addition to the £2bn already announced), as requested by NHS England chief executive Simon Stevens in the Five Year Forward View
- Student maintenance grants to be replaced with loans from 2016-17, to be paid back once people earn more than £21,000 a year