This month’s summer budget revealed that George Osborne is determined to keep an iron grip on the fiscal tiller. Under the mantra of ‘making work pay,’ the chancellor has promised to run a surplus in 2019–20, while forging ahead with cuts to welfare spending.
Cutting through the parliamentary rabble, Mr Osborne, told the house: “We took difficult decisions in the teeth of opposition and it worked. Britain is walking tall again.” The chancellor promised to “use whatever additional resources we have to get the deficit and the debt falling. No unfunded spending, no irresponsible extra borrowing.” He later added that “without sound public finances, there is no economic security for working people.”
Since the dust has settled on the first all-Conservative budget in almost 20 years, one of the announcements gaining most headline coverage is the introduction of a ‘national living wage,’ a change which will directly impact employers and employees.
Councils in England and Wales have already spoken out that this could cost them an additional £1bn a year by 2020. From April 2016, employers in the four home nations will be required to pay £7.20 an hour, increasing to £9 an hour by 2020. And in the public sector, pay increases will be restricted to 1% a year for the next four years.
In a move away from a typical first post-election budget, of spending cuts and increased taxes, the Conservatives targeted benefits and tax credits to cut the debt, while outlining benefits for businesses.
The income threshold for tax credits has been almost halved, dropping from £6,420 to just £3,850. Working tax credits will be frozen for four years, as will housing allowance, although maternity and disability benefits are exempt. Students from low-income households will also be hit, as maintenance loans are brought in to replace maintenance grants of up to £8,200 a year. The loan won’t have to be paid back once graduates earn more than £21,000 a year.
Child tax credits will be restricted to two children, for those born after April 2017. In an effort to balance this, the government has brought forward its plans to provide working families with three- and four-year-olds 30 hours of free childcare a week from 2017.
The 2015/16 financial year will also see the tax free personal allowance raise £11,000. The government used the opportunity to outline its ambitions to push the allowance further to £12,500 by 2020. And the threshold for the higher rate of tax also sees a slight nudge, with employees needing to earn £43,000 before paying 40% on earnings from April.
Employers could also see savings in National Insurance payments, as employment allowance increases from £1,000 to £3,000. According to the government statement, this means that businesses could employ four full-time staff at the national living wage, and not have to pay national insurance for the employees at all.
Following through on pre-election pledges, the chancellor announced that the NHS will receive £8bn in funding. However, doubts have been raised as to whether the NHS can achieve the £22bn in efficiency savings it has agreed to make without cutting frontline services. Meanwhile optics is still awaiting confirmation of the official general ophthalmic services (GOS) fee amendment.
Alcohol and tobacco duties were not mentioned in the statement. This omission has led to vocal disappointment from anti-smoking groups, after they lobbied for the introduction of a tobacco levy. The annual levy collected from tobacco companies would have been used to pay for smoking cessation services and media campaigns, said 120 groups led by Action on Smoking and Health.
Key meetings are also in the government diaries for regional leaders in Liverpool, Sheffield, Leeds and West Yorkshire to discuss further devolution of powers as part of the establishment of a ‘Northern powerhouse.’ Details are yet to emerge as to whether such moves would include the devolution of health and social care spending, as in Greater Manchester.
Change may also be in store for Sunday trading laws, increasing opening hours on a Sunday to stimulate local business and compete with online retailers. Decision-making on the issue is set to be devolved to local elected mayors and councils, but if current restrictions on square footage are carried forward smaller practices may be unaffected.
Commenting on the budget, head of the Confederation of British Industry (CBI), John Cridland, said: “Firms will welcome measures to balance the books and boost investment, but they will be concerned by legislating for wage increases they may not be able to deliver.” He added: “Small shops, hospitality firms and care providers are the businesses that will face real challenges in affording the national living wage.”
While the leader of the opposition, Harriet Harman, said that Labour will not adopt “blanket opposition” to the Conservative’s welfare reforms, she added the budget is “making working people worse off with tax credits and scrapping grants for the poorest students.” Ms Harman continued: “On the NHS, people will take Conservative NHS spending promises with a pinch of salt when they come from a government that has cut funding for GP services, cut funding for cancer services, cut funding for mental health services.”
Image credit: Chris Yates / Alamy