Britain is now growing faster than any of the G7 nations, employment is at record levels, wages are rising. With a dream to turn Britain's society to a 'higher wage, low tax, lower welfare' society, the Chancellor announced his summer budget on 8 July 2015.
In his all first Conservative budget in nearly two decades, George Osborne plans to cut the deficit further, while chopping rates for businesses, clipping inheritance tax and furthering radical devolution of England neglected cities. He announced a landmark national living wage, a host of tax giveaways alongside severe cuts to the welfare budget.
Trying to please the Hindu and Sikh communities, he also announced a review into crematorium facilities to ensure that they are appropriate to the needs of all users and faiths. This step will follow further representations to the Chancellor from British Hindus and Sikhs, who are concerned that current facilities are often too small, and not equipped to meet their needs.
Some salient points about this budget are as follows:
- The deficit is lower than expected
- The budget raises plenty of new revenue. Tax up on insurance for cars, homes and holidays
- Public sector pay rise to be capped by 1%
- Corporation tax cut from 20 to 18% by 2020
- Non-doms will be forced to pay full tax on foreign earnings
- Greener car discounts to be removed to pay for road building fund
- Tax giveaways for middle classes but £12bn cut from welfare budget
- Rise of national living wage from £7.20 to £9 by 2020
- £8bn more annual funding for the NHS
- University fees to increase beyond £9000
- HS1 boss to draw up Network Rail rescue plan
- Relax hunting back without new Commons battle
- Devolution deals for English cities (like Cornwall) to be announced soon
Some of the key issues will lead to the following problems:
- The new allowance for homes worth upto £1m will escape taxation, leading to encourage the well-off to buy bigger homes. In a country with severe housing crisis, that is perhaps not the best ideal.
On the other hand, housing associations will now build nearly 30,000 fewer affordable homes since Mr Osborne has scrapped a 10-year deal that allowed housing associations to raise rents by 1% more than inflation. Instead he insisted they reduce rents by 1% a year. Treasury forecasts suggest the new cuts could save £1.45bn – mainly from the housing benefit bill. But this will lead to space crisis, in an ever growing country by population.
- The students are already suffering a lot with their £9000 tuition fee. Many Asian parents, who without fail save for their children's education and marriage, may be able to help their children to afford a higher education in the UK, but there will be many natives without a University degree, as they would fail in affordability. Students will also react to the maintenance grants being scrapped, as that would make their situations really hard.
- Tax credits are an incentive to hiring. It has a modest fan follower as a policy, but swapping tax credits for minimum wages as a policy for alleviating poverty could do enormous damage in a world that depends more on technology than humans. In case of SMEs especially, Osborne's increase of minimum wage will lead to a greater problem of unemployment, leading to 60,000 people without jobs, and more stress and pressure on current employees. As Chris Rowley of the Cass Business School rightly pointed, it also does not make sense to pay the same minimum wages in the Orkneys as in London. Surely regional variations are needed in pricing labour as much as in goods?
- A further cut in the welfare is going to affect the poor. Despite austerity the basic state pension has gone up by 16% since 2010. Such rises actually benefit the rich, but the poor old people continue to suffer. Barnardo’s reckons struggling families will end up £1,200 a year worse off – or £23 a week – because of the tax credit cuts announced in the Budget.
Mr Osborne may try to implement new fairness, but mostly everyone in the country will lose out directly or indirectly through the increase in insurance premium tax that comes into effect in November. Experts opine it will add around £20 to the average motor policy and £12.50 to a typical home insurance. Entrepreneurs will be hit by the changes to dividend income taxation and those lucky top earners with incomes of £210,000 and above will be hit by the cutting back of pension tax relief to basic rate level. They could lose up to £13,500 a year through the measure.
It was a tempting effort by the Chancellor. But unfortunately its failure lies on the wobbly base of the policies. As the Economist rightly points out in its Leaders section, this was a budget built on economic mistakes. “The Chancellor's revamped Conservatism is characteristically daring. Economically it is disappointingly thin.”