Budget News

Cutting taxes for working people so they keep more of what they earn. The personal allowance will rise from £10,600 to £11,000 from April next year – worth £80 to the typical taxpayer, and meaning they are paying £905 less than in 2010. The threshold at which the 40p rate is paid will rise from £42,385 to £43,000. This is the first major step towards our commitment to raise the personal allowance to £12,500, and the 40p threshold to £50,000 by the end of the Parliament.

Introducing a new National Living Wage. Britain deserves a pay rise so we will introduce a new compulsory National Living Wage for all working people aged 25 and over. It will start next April at £7.20 an hour and we expect it to reach £9 by 2020. It will mean two and a half million people get a direct pay rise. Those currently on the minimum wage will see their pay rise by over a third this Parliament, a cash increase for a full time worker of over £5,000. 

Summer Budget: delivering security for working people

This is a budget that delivers security for working people – with our finances under control, the national debt falling, our defences supported, productivity boosted, welfare controlled, income taxes cut, and a National Living Wage. This Budget keeps us moving from a low wage, high tax, high welfare economy to a higher wage, lower tax and lower welfare country.

Today we put security first. The economic security of a country that lives within its means. The financial security of lower taxes and a new National Living Wage. The national security of a country that defends itself and its values.

 The economic security of a country that lives within its means

Britain is growing faster than any other major advanced economy. The economy grew by 3 per cent last year – up from the 2.6 per cent we thought in March – and faster than any other major advanced economy. Global risks mean that forecasts for global growth in 2015 have been revised down – but they estimate Britain will grow by 2.4 per cent this year, and be the strongest major advanced economy for the second year in a row.

Jobs are being created and living standards are rising strongly. Our businesses have created two million more jobs since 2010, and the OBR forecast that in current conditions almost a million more will be created in the next five years. Our ambition is to go further, working towards a target for full employment. Living standards are forecast to be higher this year than in 2010, and to continue growing.

The deficit, and debt as a share of the economy, are coming down. The deficit has been cut by more than a half since 2010, to 4.9 per cent of GDP in 2014/15. This is forecast to fall to 3.7 per cent this year, and fall each subsequent year, reaching a surplus of £10 billion in 2019/20. Public debt is forecast to have peaked in 2014/15 at 80.8 per cent of GDP. It is now falling and is set to fall each year of the forecast. 

Getting our budget into balance: we will cut the deficit at the same rate as we did in the last Parliament. At this pace the national debt is lower as a share of our national income in every future year than at the Budget in March, and it can be achieved without the rollercoaster ride in public spending. We will achieve surplus a year later in 2019-20 with the national debt lower and that surplus higher.

Introducing a new Charter for Budget Responsibility – so we fix the roof while the sun is shining. While we move to surplus this commits us to keeping debt falling as a share of GDP each and every year and to achieving a surplus in 2019/20. Then governments will be required to maintain that surplus in normal times – only when the OBR judge that we have real GDP growth of less than 1% a year will that surplus no longer be required (on a rolling 4 quarter on 4 quarter basis).

The financial security of lower taxes and a new National Living Wage

Cutting taxes for working people so they keep more of what they earn. The personal allowance will rise from £10,600 to £11,000 from April next year – worth £80 to the typical taxpayer, and meaning they are paying £905 less than in 2010. The threshold at which the 40p rate is paid will rise from £42,385 to £43,000. This is the first major step towards our commitment to raise the personal allowance to £12,500, and the 40p threshold to £50,000 by the end of the Parliament.

Introducing a new National Living Wage. Britain deserves a pay rise so we will introduce a new compulsory National Living Wage for all working people aged 25 and over. It will start next April at £7.20 an hour and we expect it to reach £9 by 2020. It will mean two and a half million people get a direct pay rise. Those currently on the minimum wage will see their pay rise by over a third this Parliament, a cash increase for a full time worker of over £5,000.

Extending the Employment Allowance to £3,000 – cutting the jobs tax for firms. From 2016 the Employment Allowance will rise 50 per cent so a firm will be able to employ 4 people full time on the new National Living Wage and pay no national insurance at all. 

Cutting Corporation Tax to 18 per cent and simplifying the dividend tax system so lower Corporation Tax doesn’t create such strong incentives for people to self-incorporate. We will reduce the Corporation Tax rate to 19 per cent in 2017 then 18 per cent in 2020 – action which is only possible because we are also reforming the archaic dividend taxation system. We will simplify the taxation of dividends, replacing the Tax Credit with a new tax-free allowance of £5,000 of dividend income for all taxpayers. Those who either pay themselves in dividends or have large shareholdings worth typically over £140,000 will pay more tax, 85% of those who receive dividends will see no change or be better off and over a million people will see their tax cut.

Permanently raising the Annual Investment Allowance. This Allowance was set at £100,000 when we came to office – it is higher now, but without action it will fall to just £25,000 at the end of the year. It will now be set permanently at £200,000. A major, permanent boost to the incentives for long-term investment by small and medium sized firms in Britain.

The national security of a country that defends itself and its values

Committing to meet the NATO pledge to spend 2% of our national income on defence. Not just this year, but every year of this decade. We will ensure that this commitment is properly measured, because we know that while these commitments don’t come cheap, the alternatives are far more costly.

 

Rebalancing our economy and boosting productivity

Setting out a plan to boost productivity. We’ll soon set out a comprehensive Plan for Productivity, but today we announce a long-term solution to fix Britain’s poor roads with a new system of Vehicle Excise Duty (the new system will raise the same amount of revenue from VED in the future that we do today, but that revenue will be secure for the long-term) – and from the end of the decade every penny raised in VED will be used to invest in roads. We’ll introduce an apprenticeship levy on large firms to fund 3 million more quality apprenticeships. Firms that offer apprenticeships can get more back than they put in. The money will be directly controlled by employers and we’ll work with businesses on how to do this. We’re removing the artificial cap on student numbers, but to pay for this we need to tackle the cost of student maintenance grants. They are set to almost double to £3 billion over this decade. From 2016/17 we will replace maintenance grants with increased loans – the highest amount of support ever provided.

Rebalancing the economy. We are building on London’s success, working with the Mayor on future projects like Crossrail 2. We are building up other parts of the UK to balance London’s strength: devolving powers in Scotland, Wales and Northern Ireland; and in England working to rebalance the economy and build the Northern Powerhouse. We have reached agreement with the leaders of the 10 councils of Greater Manchester to devolve further powers to the city. We are putting Transport for the North on a statutory footing with £30 million of start-up funding to develop plans to connect northern England together, and create seamless oyster-style ticketing across the region. We are in advanced discussions with the authorities in Sheffield, Liverpool, Leeds and their surrounding authorities on a far reaching devolution of powers in return for the creation of directly elected Mayors. We’re making progress on a major plan to give Cornwall a greater say over local decisions and set out investment across the country.

Reforming welfare so the system is fairer and more affordable.

Making £12 billion of further savings in the welfare budget. Britain is home to 1% of the world’s population; generates 4% of the world’s income; and yet pays out 7% of all the welfare spending. This is not sustainable so we have set out a package to save £12 billion from welfare so we better protect spending on public services.

Supporting the elderly, the vulnerable, and the disabled. We are keeping our commitment to protect pensioner benefits and keep the triple lock. The BBC have agreed that in future they will take responsibility for funding free TV licenses for over-75s. We are also not going to tax or means-test disability benefits. 

Those who can work will be expected to look for it and take it when offered. We are: replacing Job Seekers Allowance for 18-21 year olds with a new Youth Obligation so they are either earning or learning, and abolishing their automatic entitlement to housing benefit; changing the conditions for lone parents claiming out of work benefits to reflect the 30 hours free childcare this Budget introduces for working parents of 3 and 4 year olds; and reforming Employment and Support Allowance to help increase employment among those with health challenges, who are able to work – giving new claimants in the Work-Related Activity Group more support in to work, but not paying them the benefit at a higher rate than JSA 

Putting working-age benefits on a more sustainable footing. We will freeze working-age benefits for four years to 2019/20 – addressing the issue of benefits growing faster than wages since 2008; focus Tax Credits and Universal Credit on those on lower incomes by reducing the levels at which they are withdrawn;reduce rents paid in the social housing sector by 1 per cent a year for 4 years – ending the ratchet of ever higher housing benefit and rents, and benefitting working tenants who pay their own rent; limit, in future, the support provided to families through tax credits or Universal Credit to two children – so all families thinking about having another child face the same choices; reduce the benefit cap from £26,000 to £23,000 in London, and £20,000 in the rest of the country – so people don’t get more on benefits than working families; and require social tenants on higher incomes – above £40,000 in London or £30,000 elsewhere – to pay rents closer to the market rate so they aren’t subsidised by other working people.

Ensuring taxes are fair

Supporting saving and aspiration by taking the family home out of inheritance tax. We are raising the effective threshold for most couples to £1 million; creating a third type of ISA so ordinary savers can take advantage of new peer-to-peer lending; and publishing a Green Paper on further reforms to encourage pension saving.

Tackling tax avoidance, evasion and aggressive tax planning. The package of measures put together finds the further £5 billion we promised at the election. Measures include: increasing HMRC’s ability to go after tax fraud, offshore trusts, and businesses of the hidden economy; changing the law to stop the use of losses to abuse our controlled foreign companies regime; stopping corporates artificially increasing the value of stock for tax purposes; stopping companies where the director is the only employee from claiming Employment Allowance; discussion document on ways to deal with the abuse of self-employment laws; introducing tough new penalties to the General Anti-Abuse Rule; and publishing the names of serial users of failed avoidance schemes.

Changing non-dom rules so British people pay British taxes in Britain. It is not fair that people who are born in the UK to parents who are domiciled here, can later in life claim to be non-doms and live here. It is not fair that non-doms with residential property here in the UK can put it in an offshore company and avoid inheritance tax. From now on they will pay the same tax as everyone else. We’re also abolishing permanent non-dom status, so anyone resident in the UK for more than 15 of the past 20 years will pay full British taxes.