It was the much anticipated first all-Conservative budget since 1996, it was expected to be a demonstration of what true austerity would look like and it didn’t disappoint.
George Osborne, the Chancellor of the Exchequer stated this morning that he would present “a Conservative Budget- a budget that puts economic security first”. With the backdrop of the financial crisis in Greece this statement couldn’t be more poignant as Osborne stated “you only have to look at the crisis unfolding in Greece to realise that if a country’s not in control of its borrowing, the borrowing takes control of the country.”
The Chancellor was under pressure to produce a budget that kept a lot of the promises made in their manifesto and without the excuse of the coalition it was always likely that the cuts would be deeper than ever. So, why all the cuts?
The UK’s national debt totals around £1.56 trillion, which is roughly 80% of the total GDP. However these aren’t even the important numbers, with most developed countries having sizeable national debts. The crucial factor is the interest that the UK must pay to service the existing national debt, this stands at around £43bn. With this much debt the Conservative party have been key to push through cuts to the UK’s budget. The aim of Osborne is to reduce the deficit to 2.2% by 2017 and reduce borrowing to £6.4bn in 2018-19, and be in surplus of up to £10bn by 2020 this currently stands at £69.5bn in 2015.
What were the key talking points?
Welfare: “Welfare spending is not sustainable”
It was expected that welfare would be one of the key talking points in this budget and this turned out to be the case. As predicted Osborne announced that there would be £8bn worth of cuts throughout the next two years in welfare alone, with another £4bn to occur in 2017/18. In his speech Osborne outlined where this £8bn ‘savings’ would come from:
- The welfare cap will be reduced to £20,000 in the UK and £23,000 in London. This is how much one family can claim in benefits per annum.
- Cuts in housing benefit, including for those under the age of 25.
- Child tax credit will be limited to only the first two children from April 2017.
- Social housing tenants are to pay a higher rent if on higher incomes. Anyone earning above £30,000 in one fiscal year will be required to pay the increased rent.
- The BBC is to cover the £650 million cost of providing free television licences for over-75s.
Taxation: Inheritance tax threshold increased to £1 million
With the pressure to implement much of what was promised in their election manifesto on taxation, Osborne was always expected to introduce many changes to the taxation system as he promises his “lower tax, lower welfare society”:
- An increase in the inheritance tax threshold for married couples from £650,000 to £1 million
- There will be increase funding and support for HMRC totalling £750m to go after tax avoidance expected to raise around £7bn.
- Abolition of permanent non-domicile status by April 2017 aiming to raise £1.7bn.
- Implementation of an 8% surcharge on banking profits, starting at the beginning of the new year.
- Corporation tax reduced to 18% from 20% by 2020.
- 40p tax threshold will rise to £43,000 from next year.
NHS: A further £8 billion in investment
Osborne declares “our priority is the NHS” following on to this statement he confirmed the NHS would receive £8bn on top of the extra £2bn provided this year. This is to be implemented by 2020.
Higher Education: Maintenance grant scrapped
- The key policy that will trouble students is the maintenance grants being scrapped. This is being replaced by the maintenance loan, the loan will not be repayable until someone earns more than £21,000 a year. Only new students from 2016/17 onwards will have to pay these new loans.
- However there is some good news on the maintenance loan with students going to be able to gain more, up to £8,200 a year, in maintenance loans.
- The new apprenticeship levy which is designed so that firms “get more back than they put in” as Osborne stated, is designed to create more than three million more apprenticeships.
- Sunday working hours relaxed. Businesses, particularly middle sized businesses to be allowed to stay open for more hours. These hours will now be set by local councils and their Mayors.
- Free childcare of up to 30 hours a week for all working parents of three and four year olds.
- Commitment to spend 2% of national GDP on Military.
The key factors affecting students:
- The maintenance grant replaced by the maintenance loan, meaning students from the poorest families will have debt of up to £51,600 if they study a 3-year course.
- The increase in the number of apprenticeships
- The youth obligation policy. Osborne states that those aged 18 to 21 must either earn or learn therefore he is abolishing automatic entitlement to housing benefit for 18 to 21 year olds.
- New national living wage to be introduced next year and reach £9 per hour by 2020, but only those who are 25 and over.
It had been expected to be a budget that would affect everybody. It was one in which Osborne stated he aimed to put “security first”. It was always going to be interesting to see what a Conservative budget without the constraints of a coalition would look like, and the difference is stark.
For students this is a worrying budget not only with the scrapping of maintenance grant making it harder for those from poorer backgrounds to go to university. For new families and the worst off in society the news only gets worse with the freezing of tax credits for families and the reduction in the welfare cap. However Osborne promised a “lower tax, lower welfare” budget, so at least he can say he keeps his promises.