The overnight pre-briefing promised a ‘big’ budget. George Osborne’s announcements today certainly lived up to the billing.
In the first Budget under a purely Conservative administration for 19 years, George Osborne sought to claim the mantle of the “workers’ party” from Labour: a budget for working people, creating a lower tax, lower welfare UK.
The Chancellor did indeed cut some taxes – but froze public sector pay. He slashed billions from welfare – but introduced a new Living Wage.
In the March Budget, the Office of Budget Responsibility (OBR) described planned spending cuts as a “rollercoaster ride”: sharp cuts for two years, with a spending splurge prior to the 2020 election. Today, the OBR said spending had been “loosened considerably”, to the tune of £83.3bn over the current parliament than thought earlier this year – as well as tax cuts costing £24.6bn.
So how has he financed these giveaways? The OBR points to five sources:
- Tax increases of £47.2bn, including earlier Corporation Tax payments for companies with over £20m in profits; big increases in dividend taxation and insurance premium tax; and cuts in pension tax relief
- Welfare cuts, raising £34.9bn – the most lucrative of which are a four-year freeze in most working-age benefits and reductions in income thresholds in tax credits and work allowances in UC
- Other spending decisions which together raise £8.1bn and include a cut in funding for the BBC which reaches £745m in 2020-21
- £14.2bn of indirect effects from the above decisions, including higher tax and NICs receipts
- £3.5bn of extra borrowing over the Parliament, on top of the £14.6 billion increase implied by the OBR’s pre-measures forecast
In smoothing out the path to putting the government’s books back in the black, Mr Osborne announced a new fiscal charter: debt falling as a share of GDP every year, and surplus delayed by a year to 2019/20.
He also confirmed governments will be compelled to run a surplus in “normal times”, defined as years with real GDP growth of over 1% a year. MPs will vote on the measure in the autumn: a potential political trap for the new Labour leader.
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- Corporation Tax cut to 19% in 2017 and 18% in 2020
- Corporation Tax payment dates brought forward in 2017 for companies with profits in excess of £20m
- Bank levy to be reduced over next six years, with a new 8% surcharge on bank profits from next year
- Apprenticeship Levy on all “large firms”
- A further £7.2bn to be raised from a clampdown on tax avoidance and tax evasion with HMRC’s budget increased by £750m
- New cap on charges imposed by claims management companies
- Increase in insurance premium tax to 9.5% from November
- Climate Change Levy exemption for renewable electricity to be removed
Personal taxation and pay
- New National Living Wage from next year which will reach £9/hour by 2020 for over 25yr olds
- Personal tax allowance threshold increased to £11,000 next year
- 40p higher rate tax threshold raised to £43,000 next year
- From 2017, new Inheritance Tax allowance phased in, allowing couples to pass on estates worth up to £1m free of tax. It will taper away for estates worth more than £2m.
- Permanent non-dom status abolished from April 2017
- Working-age benefits to be frozen for four years
- Tax credit and Universal Credit restricted to two children
- Income threshold for tax credits for to be reduced from £6,420 to £3,850
- 18-24 year olds no longer entitled to claim housing benefit, with a new “earn to learn” obligation
- The annual household benefit cap will be reduced from £26,000 to £23,000 in London and to £20,000 in the rest of Britain
Alcohol, tobacco, gambling and fuel
- No rise in fuel duty this year with rates remaining frozen
- No mention of alcohol and tobacco duties in the Budget
- Major reform of vehicle excise duty (VED) to pay for new road-building and maintenance across England
Health and education
- Confirmation of Government funding for the NHS’ Stevens plan with a further £8bn by 2020
- Student maintenance grants replaced with loans, repayable once graduates earn more than £21,000
- A commitment to meet the NATO target of spending 2% of GDP on defence every year
- Defence spending to rise in real terms (0.5% above inflation) in every year of the Parliament
- A new £1.5bn Joint Security Fund for investment in military and intelligence agencies
Infrastructure and devolution
- Further English devolution: fire services, land commission, children services, employment programmes devolved to Greater Manchester, and working towards deals with Liverpool, Leeds, Sheffield, and West Yorkshire
- Transport for North made a statutory body and given £30m funding including roll-out of oyster-style ticketing system across the north