Everything you need to know about the Budget
On 8 July 2015, the Chancellor delivered the Summer Budget.
- It’s thanks to the hard work and sacrifice of the British people over the last five years that, working through our economic plan, we’ve been able to turn the economy round. We won’t put that at risk.
- That’s why this Budget puts 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. And the national security of a country that defends itself and its values.
- It’s a One Nation Budget from a One Nation Government: continuing to move Britain from a low wage, high tax, high welfare economy to a higher wage, lower tax and lower welfare society.
Our Long-Term Economic Plan is working:
- Britain is growing faster than any other major advanced economy. The economy grew by three per cent last year – up from the 2.6 per cent we thought in March – and faster than any other major advanced economy. Britain is forecast to be the strongest growing major advanced economy for a second consecutive year, with 2.4 per cent growth.
- 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 further each 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.
This Budget sets out the next steps in our plan:
Eliminating the deficit and bringing the national debt down
- We will cut the deficit at the same rate as we did in the last Parliament – and introduce a Charter for Budget Responsibility so we fix the roof while the sun is shining. The new Charter commits us to keep debt falling as a share of GDP each and every year as we move to surplus, and to achieving a surplus in 2019/20. Then governments will be required to maintain that surplus in normal times – until the OBR judge that we have real GDP growth of less than one per cent a year.
Moving to a higher wage, lower tax, lower welfare society
- Introducing a 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 – giving two and a half million people a direct pay rise.
- 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 and 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.
- Making £12 billion of further savings in the welfare budget. Britain’s present welfare bill is unsustainable and we have set out £12 billion of savings to get it down. We’re doing this according to principles of: supporting the elderly, vulnerable, and disabled; expecting those who can work will to look for it and take it when offered; and ensuring working-age benefits are on a more sustainable footing.
Backing businesses to create more jobs
- Cutting the jobs tax for firms. From 2016 the Employment Allowance will rise by 50 per cent so a firm will be able to employ four people full time on the new National Living Wage and pay no national insurance.
- Cutting Corporation Tax to 18 per cent and raising the Annual Investment Allowance. We will reduce the Corporation Tax rate to 19 per cent in 2017 then 18 per cent in 2020. This is only possible because we are also reforming the archaic dividend taxation system, replacing the Tax Credit with a new tax-free allowance of £5,000 of dividend income for all taxpayers.
- Permanently raising the Annual Investment Allowance. We are raising the permanent level of the Annual Investment Allowance from the £25,000 it is set to fall to at the end of this year to £200,000, giving a major, permanent boost to the incentives for long-term investment by small and medium sized firms in Britain
- Delivering a plan for productivity and rebalancing the economy. The Budget takes further steps to rebalance the economy, devolving power across the UK and helping build the Northern Powerhouse. We’ll also set out a comprehensive Plan for Productivity – securing investment in transport, skills and housing. As part of this, an apprenticeship levy on large firms will help fund 3 million apprenticeships in this Parliament. We are also removing the artificial cap on university, and so this is affordable we will tackle the cost of student maintenance grants, replacing them with loans for new students from 2016/17.
Ensuring the national security of a country that defends itself and its values
- Committing to meet the NATO pledge to spend two per cent of our national income on defence. This will be for 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.
Making taxes fairer
- 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 – so family homes are no longer hit by the tax.
- Making sure the best off pay their fair share of taxes. We have set out measures to raise £5 billion a year from tackling tax avoidance and aggressive tax evasion. Alongside this we are abolishing permanent non-dom status, and tightening the rules to British people pay British taxes in Britain.
The Chancellor set out in his Budget our plan to create a National Living Wage (NLW).
- Britain deserves a pay rise. In the last five years we’ve taken the tough choices to drive down our borrowing, make our business taxes competitive and reform welfare.
- It’s because we’ve taken these difficult decisions that the Chancellor was able to announce a new National Living Wage, compulsory as of next April, expected to reach £9 an hour by 2020. This will benefit 6 million workers, and boost pay for those on the Minimum Wage by £5,200 by 2020.
- Tackling low pay is part of our plan to move to a higher wage, lower tax, lower welfare society, building a more productive Britain and giving families the security of well-paid work.
- Introducing a new National Living Wage. The NLW will be mandatory for workers aged 25 and above, and initially set at £7.20 – a rise of 70p relative to the current National Minimum Wage (NMW) rate.
- Putting the NLW on course to reach £9 by 2020. We will ask the Low Pay Commission to recommend the level of the premium in each subsequent year, asking them to increase the NLW to 60 per cent of median earnings by 2020. On OBR forecasts we would expect the NLW to reach a level of over £9 by 2020.
- We can only make this change because our economic plan is working. With record employment, the highest GDP growth in the G7, over 2 million more jobs and 1.1 million more forecast, we believe that now is the right time to make sure low wage earners can take a greater share of the gains from growth.
- The NLW will prevent taxpayers subsidising low pay. It can’t be right to go on asking taxpayers to subsidise the businesses who pay the lowest wages through tax credits. By addressing low pay, we can boost productivity and save the taxpayer money: part of our plan to eliminate the deficit by 2020.
The Chancellor announced the NATO two per cent defence spending target will continue to be met for the rest of this decade, and the defence budget will rise in real terms each year.
- Britain has always been resolute in defence of liberty and the promotion of stability around the world. And with this government it will always remain so.
- That is why in this Budget we guarantee a real increase in the defence budget every year – and will create a £1.5 billion a year joint security fund by the end of the year. This means we can commit today to meet the NATO pledge to spend two per cent of our national income on defence – not just this year, but every year of this decade.
- This will ensure that Britain’s defence budget continues to support world-class armed forces, with the equipment and capabilities needed to deliver security for Britain.
We are doing this by:
- • Committing to spend two per cent on defence. Since 2010 we have met the NATO two per cent target. We commit to meeting the properly measured NATO pledge this year and for the rest of this decade.
- Increasing the defence budget – with additional funding for our military and intelligence agencies. To deliver this commitment, the entire MoD budget will now rise in real terms each year to 2020-21. In addition, there will be up to £1.5 billion a year of extra funding by the end of the Parliament for the military and intelligence agencies to fund increased spending by an average of one per cent a year in real terms. And we commit to protecting counter terrorism spending of over £2 billion across government in real terms.
- • Labour left a legacy of chaos in defence. According to the National Audit Office, Labour left a £38 billion gap between available funding and the cost of the defence budget.
On 8 July 2015, the Chancellor set out his plan to deliver our promise to make £12 billion of further welfare savings by 2019/20, as part of a move to a higher wage, lower tax, lower welfare society.
- To live within our means as a country and better protect spending on public services we need to find at least a further £12 billion of welfare savings – and as promised this is what we have found.
- We’ve done this while supporting the elderly, vulnerable, and disabled; ensuring that work is encouraged; and putting the working-age benefits system on a more sustainable footing.
- This will ensure we can get the deficit down, and make our welfare bill sustainable – moving Britain closer to the higher wage, lower tax, lower welfare society the British people want to see.
We are doing this by:
- 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 to take on the cost of 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 Jobseeker’s 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 introduced for working parents of 3- and 4-year-olds.
- 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 Jobseeker’s Allowance.
Putting working-age benefits on a more sustainable footing.
- 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 one per cent a year for four 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.
- 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.