Summer Budget 2015

Two budgets in a year are rare and could be seen as a sign of crisis.

That does not seem to be the case after Summer Budget on Wednesday 8th July 2015, the Chancellor has grasped the opportunity denied him previously by the state of the economy he inherited and the constraints of coalition government.

The government’s majority and the temporary preoccupation of the Opposition with choosing a new leader gave him room to produce a genuinely Conservative budget.

He wants a low tax, high wage economy in which benefits are targeted at those unable to work by reasons of age or disability.

The economy has grown at 3% this year, faster than in any of the developed economies, unemployment has dropped with the creation of two million new jobs and living standards are rising because of zero inflation.

Osborne claims his party was re-elected because it had pulled the economy out of recession but there is much still to do in reducing the deficit by 2018-19 and creating a budget surplus by the 2020 election.

This requires further substantial reductions in public spending.

The Chancellor is convinced that tax credits allow employers to keep wages down knowing the State will top them up and he wants to gradually phase them out but introduce a compulsory National Living Wage of £7.20 an hour, rising to £9.00 per hour by 2020.

The tax-free personal allowance will be raised to £11,000 next year, increasing to £12,500 by 2020.

The 40p rate paid by middle income earners is also raised to £43,000, increasing to £50,000 by 2020, taking 130,000 out of the higher rate.

These measures could mean some lost jobs so the budget includes a reduction in Corporation tax to 19% and a cut in national insurance contributions for small firms and a 50% increase in the Employment Allowance.

This means that a small firm could employ four people full time on the National Living Wage and pay no national insurance contributions at all.

Several measures were well telegraphed in advance.

Inheritance tax rules will be changed so that homes worth up to £1 million can be passed on tax free to one’s children but estates worth more than £2 million will pay more.

Housing benefits for those earning more than £40,000 in London and £30,000 elsewhere will be removed, this is aimed at high earners living in social housing that was intended for low earners.

The Treasury will also sell off taxpayer stakes in RBS, Lloyds Bank and Royal Mail.

Responding for the Opposition, Harriet Harmon said a Labour Government would have cut spending outside protected departments and reduced the welfare budget but attacked the Chancellor for not doing more to boost productivity.

More needs to be done to improve skills, increase investment and modernise the infrastructure.

She instanced the need for more investment in railways and attacked the scrapping of student maintenance grants, she also called for more house building and full consultation on any changes to Sunday trading laws.

There is logic to this budget but it will work better for healthy people willing and able to work. 

It could be tough for those without the skills and job opportunities to earn the living wage and cope without welfare support.