On 8 July 2015, the Chancellor George Osborne delivered the first Budget statement from a Conservative majority Government since 1996, in which he declared he would create a “higher wage, lower tax, lower welfare country.” This bold statement was backed up by a Budget Speech that outlined significant cuts in welfare and to working age benefits, which would, in part, be offset by the introduction of a new compulsory National Living Wage.
With broadly positive figures from the Office of Budget Responsibility on economic growth and public finances (although GDP growth for 2015 had been revised down slightly for 2015), the Chancellor signalled that the rate of deficit reduction would be slower than previously envisaged – thereby allowing the Government to “achieve a smoother path to the same destination.” Nevertheless, Osborne maintained that the fiscal plan set out in the Budget requires £37 billion of consolidation over the next five years, with £12 billion coming from welfare and £5 billion from “tackling tax evasion, avoidance, planning and imbalances in the tax system” (ie tax increases) and the remainder to come from Government departmental spending, which would to be outlined later in an Autumn Spending Review.
Whilst the Chancellor maintained that he wanted to create a lower tax economy, the Budget was notable for its major reforms to taxation and for the introduction of a number of revenue raising measures. With rates in Income Tax and VAT remaining untouched, Osborne announced major changes such as an increased dividend tax for the wealthy, the abolition of permanent ‘Non Dom’ tax status and the withdrawal of tax relief for buy to let landlords. Other key measures included an 8% surcharge on profits made by banks and an increased insurance premium tax.
It was the welfare budget, however, which was subject to the biggest reforms. Targeting housing benefit and tax credits specifically, Osborne announced major reforms to welfare payment, with a freeze on working age benefits, a reduction of the welfare cap and the limiting of benefits to the first two children, for new claimants after 2017. Osborne noted that these changes “are not easy but they are fair” and argued that by making such tough choices, Britain was now in a position where it is able to afford a pay rise. With that, Osborne produced one of the biggest ‘rabbits’ in recent Budget statements by announcing the introduction of a new National Living Wage – a compulsory minimum wage for working people aged 25 and over, starting at £7.20 from April 2016 and rising to £9 an hour by 2020.
With this headline-grabbing announcement, the Chancellor will hope that this Budget will position the Conservative Party as firmly on the side of working people. While the Labour Party still yet to elect a permanent leader, Osborne will also hope that these bold measures in his statement will seize the political agenda and define it for the coming months and years.