George Osborne has used his first Conservative Budget to force businesses to pay more for their employees.
Business measures announced in the Budget statement include:
- Working age benefits to be frozen for four years – including tax credits and local housing allowance, but excluding maternity pay and disability benefits
- Corporation tax cut to 18% by 2020
- Fuel duties frozen for the remainder of this year
- New car tax bands with a standard charge of £140 – and new cars will not need MOTs for the first four years, rather than three
- Pensions tax annual allowance to be tapered away to a minimum of £10,000 from next year
- Corporation tax cut to 18%
Unveiling the first Conservative Budget since 1996, Mr Osborne said the UK economy today was “fundamentally stronger than it was five years ago”, with living standards rising strongly.
And his Budget was “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”.
In a surprise announcement at the end of his speech, he said workers aged over 25 would be entitled to a “national living wage” from next April, to soften the impact of in-work benefit cuts.
The current minimum wage, which applies to those aged over 21, is £6.50. Those entitled to the “living wage” will get £7.20 and that will rise to £9 an hour by 2020. Labour had vowed to increase the minimum wage to £8 by 2020 during the general election campaign.
The move is expected to boost the wages of six million people but may cause firms to recruit more under-25s, who will be on a lower rate, according to the Office for Budget Responsibility.
The chancellor announced an estimated £4.5bn cut to the £30bn-a-year tax credits system, which tops up the wages of low-paid workers, significantly reducing the amount someone can earn before they start losing benefit money.
Tax credits are a type of welfare payment, introduced by Gordon Brown in 2003, that allow unemployed people to keep some of their benefits when they get a low-paid job and are also paid to disabled workers and those responsible for children. They are due to be phased out when Universal Credit is introduced.
The Living Wage Foundation director Rhys Moore said the proposed £9 rate was a “massive victory” for campaigners, but that it was “effectively a higher national minimum wage and not a living wage”, due to the different ways the two rates are calculated.