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Budget 2015: Surprise 'Living Wage' unveiled by George Osborne alongside further welfare cuts and a public sector pay rise cap - live updates

By Claire Cromie and James Tapsfield

Published 08/07/2015

The Chancellor of the Exchequer George Osborne (4th R) and his treasury team
The Chancellor of the Exchequer George Osborne (4th R) and his treasury team
The Chancellor of the Exchequer George Osborne holds his ministerial red box up to the media as he leaves 11 Downing Street on July 8, 2015 in London, England. The Chancellor is presenting his summer budget today to Parliament and is expected to announce £12 billion in welfare cuts. (Photo by Stuart C. Wilson/Getty Images)

George Osborne has unveiled a compulsory "living wage" set well above the National Minimum Wage, declaring that "Britain deserves a pay rise" in the first Tory-only Budget for nearly 20 years.

The Chancellor surprised Parliament with the announcement for working people aged 25 and over, starting in April 2016 at £7.20 an hour and reaching £9 an hour by 2020.

The amount was recommended in a report by Sir George Bain - chair of the Low Pay Commission and former President and Vice-Chancellor of Queen's University Belfast.

The change will mean a direct pay rise for 2.5 million people, with those currently earning the minimum wage of £6.50 an hour £5,000 better off by 2020.

Budget highlights:

  • Tax-free personal allowance for income tax to be raised from £10,600 to £11,000 next year. Higher rate threshold to rise from £42,385 to £43,000.
  • Working-age benefits to be frozen for four years - including tax credits and local housing allowance, but excluding maternity pay and disability benefits.
  • Income threshold for tax credits to be reduced from £6,420 to £3,850.
  • Abolition of automatic entitlement to housing benefit for 18 to 21-year-olds.
  • Public sector pay rises will be restricted to 1% per year for the next four years.
  • Fuel duty to remain frozen this year. New bands for vehicle excise duty for brand new cars from 2017 - with most cars paying £140 standard charge. No change for existing cars.
  • Tax relief for homeowners who rent out a room to be increased from £4,250 to £7,500 from next year.
  • Tuition fees to rise in line with inflation - and student maintenance grants will be replaced by loans from 2016/17, which people will start to pay back once they earn more than £21,000. The maximum loan will be increased to £8,200.
  • New inheritance tax allowance of £175,000 on homes left to children or grandchildren from 2017, allowing £1 million to be passed on tax-free.
  • Corporation tax to be cut from 20% to 19% in 2017 and 18% by 2020.
  • Sunday trading hours: English and Welsh counties and elected mayors will be given the power to set Sunday trading hours in their areas.

A total of 6 million people are expected to see their pay increase overall.

But acting Labour leader Harriet Harman responded by claiming the Budget was "making working people worse off" by cutting tax credits for the low paid and grants for students from poorer backgrounds.

Welfare cuts

The announcement was the final flourish in an audacious package of reforms which amounted to the biggest shake-up in welfare for decades.

Mr Osborne took an axe to tax credits, declaring that families will only receive the handouts and Universal Credit payments for the first two children.

People under the age of 21 will no longer be automatically entitled to housing benefit, all working age benefits will be frozen for four years, and social rent payments will be cut 1% every year until 2019.

Read more: Budget 2015: Northern Ireland reaction

He also confirmed that the benefits cap is being reduced from £26,000 to £23,000 in London and £20,000 in the rest of the country.

Student grants are being scrapped and replaced by loans to save £1.6 billion.

But the Chancellor also took advantage of a windfall from higher-than expected tax revenues to slow the pace of the £12 billion welfare reductions - saying the annual cut will not be fully implemented until 2019-20, two years later than previously planned.

Austerity cuts have also been slowed in response to concerns from international bodies such as the OECD, and the Government is not now due to meet Mr Osborne's target of an absolute surplus until 2018-19 rather than 2017-18.

The key figures:

  • National debt forecast to be 80.3% this year, then 79.1%, 77.2%, 74.7% and 71.5% in subsequent years before reaching 68.5% in 2020/21.
  • The Office for Budget Responsibility forecasts growth for 2015 at 2.4%, then 2.3% in 2016, then revised up to 2.4% in 2017, and for rest of decade. It forecasts almost 1 million new jobs over the next five years.
  • Borrowing revised down to £69.5 billion this year, then revised up to £43.1 billion and £24.3 billion the following two years and to reach £6.4 billion in 2018/19.

Public sector pay

The Government is facing fresh clashes with public sector workers after the Chancellor announced a further clampdown on pay.

George Osborne said wage rises in the public sector will be 1% a year for the next four years following similar restraint in recent years.

The move will enrage unions representing workers in the health service, education, civil service and elsewhere in the sector.

Dave Penman, leader of the senior civil servants' union FSA, said: "By restricting public sector pay rises to 1% for a further four years, the Chancellor is excluding public servants from the benefits of the economic recovery he spent so much time lauding this afternoon.

"Public servants are being asked to deliver a further £13 billion of spending cuts, yet many of them will be taking home less pay than they did in 2010. A further four years of pay restraint will do nothing to help recruit, reward and motivate the greatest asset the Government has: the people who deliver public services.

"The Chancellor said today that 'Britain deserves a pay rise and Britain is getting a pay rise'. Unless, of course, you're a public servant."

Greece crisis

Mr Osborne told MPs Britain has "left the age of irresponsibility behind".

He said the UK economy today is "fundamentally stronger than it was five years ago", with living standards rising strongly.

"You only have to look at the crisis unfolding in Greece as I speak to realise that if a country's not in control of its borrowing, the borrowing takes control of the country," said the Chancellor.

"Britain still spends too much, borrows too much, and our weak productivity shows we don't train enough or build enough or invest enough."

"This will be a Budget for working people."

Meanwhile anti-cuts protesters blocked Whitehall chanting "balls to the Budget" and brandishing anti-austerity slogans (video footage below). Dozens of police officers lined up in front of the Downing Street gates as the demonstrators threw plastics balls towards them.

And the Trussell Trust says the number of people fed by foodbanks remains at its highest ever level after a "period of cost of living rises, a pay squeeze, and issues for welfare recipients caused by recent reforms".

NHS gets extra cash

The NHS will receive a further £8 billion by 2020.

Referring to NHS England's Five Year Forward View, which had called for the extra cash, Mr Osborne told MPs: "That plan requires very challenging efficiency savings across the health service, which must be found.

"But it also requires additional Government funding.

"Our balanced approach means I can today confirm the NHS will receive, in addition to the £2 billion we've already provided this year, a further £8 billion.

"That's £10 billion more a year in real times by 2020.

"It's proof that you can only have a strong seven-day NHS if you have a strong economy and it's proof that the NHS is only truly safe in Conservative hands," he added.

Corporation tax cut

The OBR has forecast that the new living wage - Mr Osborne's retort to critics who have suggested he is not helping working people - will result in 60,000 fewer jobs, but the impact will be reduced because of corporation tax being cut to 18% by 2020.

He said firms already pay the lowest rate of corporation tax in the G20 group of countries after a series of reductions have brought it down from 28% in 2010 to 20%, but said it will be cut again to 19% in 2017 and 18% in 2020.

Mr Osborne said: "This country cannot afford to stand still while others rush ahead."

He added: "We're giving businesses the lower taxes they can count on, to grow with confidence, invest with confidence and create jobs with confidence.

"A new 18% rate of corporation tax - sending out loud and clear the message around the world: Britain is open for business."

Partner Genevieve Moore at London chartered accountants Blick Rothenberg said: "Big businesses will benefit from the reduction - let's hope they invest it back in their employees and the UK."

The Chancellor also said companies with annual profits of more than £20 million will see their corporation tax payment dates brought forward, "so tax is paid closer to the point at which profits are earned".

He added: "This is fair, it's more in line with what we're doing in personal tax and is what almost all other G7 nations do."

In another boost for firms, Mr Osborne said small businesses will see their national insurance contributions (NICs) reduced from 2016 by increasing the Government's new employment allowance by 50% to £3,000.

He said this would mean small businesses would be able to employ four full-time staff on the new national living wage and pay no NICs at all.

Austerity protest

Anti-cuts groups pelted Downing Street with balls in protest against austerity, as Chancellor George Osborne delivered his first all-Tory Budget.

The protesters, who are opposed to expected cuts to disability services and tax credits, then marched to Westminster Bridge, where they completely blocked traffic.

Police persuaded the protesters to move to Parliament Square, where they again kept traffic stationary with a huge banner bearing their slogan "#ballstothebudget".

David Peel, 55, from protest group Class War, said Mr Osborne's Budget was "probably one of the worst budgets in living memory for poor people, for working class people and especially for the disabled".

He added: "This is about raising the profile of the opposition to the austerity and the opposition to the cuts which are hurting disabled people most.

"We will keep doing this until we win".

Police, including officers on horses, pushed the growing number of protesters onto the green of Parliament Square, allowing traffic to pass through.

John Burgess, representing Barnet Unison, said he was protesting against cuts to local government and "showing solidarity" with others.

Wearing a mask bearing the Chancellor's face he said: "Osborne is about to unleash spending cuts in local government which will in effect end local government if nothing changes."

Later the anti-austerity group People's Assembly will hold a series of rallies across the country, including London, Cardiff, Birmingham, Bristol, Leeds, Manchester, Newcastle, Nottingham and Sheffield.

Read more:

Budget 2015: Northern Ireland reaction  

Greek crisis: £26bn wiped off value of UK's top companies as FTSE takes a dive  

Cameron vows to protect UK as crisis in Greece deepens  

Increasing productivity is crucial in low wage economy  

Osborne sets out plan to slash BBC budget by £650m 

Deal urged on welfare dispute  

David Cameron announces deep cuts to tax credits  

Cuts to go ahead as Martin McGuinness joins anti-austerity protest  

Foster urges London to impose welfare reform as hopes of a deal fade for Northern Ireland  

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