Welfare slashed as expected as Chancellor announces new ‘living wage’

Chancellor George Osborne arrives at Baileys in Alnwick. Picture by Jane Coltman
Chancellor George Osborne arrives at Baileys in Alnwick. Picture by Jane Coltman

The first Conservative Budget in almost 20 years included expected tax and welfare cuts, but also a ‘national living wage’ of £7.20 an hour.

Chancellor George Osborne announced that from April next year, a national living wage of £7.20 an hour will be introduced, essentially a new national minimum wage for those over 25. This will rise to more than £9 an hour by 2020.

At the same time, the tax-free personal allowance will be increased from £10,600 to £11,000. The higher-rate threshold for paying 40 per cent tax will increase from £42,385 to £43,000 in 2016/17.

Corporation tax will also be cut, first to 19 per cent and then to 18 per cent in 2020.

But working-age benefits will be frozen for four years from 2016/17, while the household benefit cap will be reduced to £20,000 and child tax credit will be limited to two children for those born from April 2017.

However, from September 2017, working families with three and four-year olds will receive 30 hours of free childcare – up from the current 15 hours.

Students will also be impacted, with maintenance grants for those from poorer backgrounds to be abolished from 2016/17, to be replaced by loans.

On the transport front, road tax will be reformed to bring in a flat rate of £140 a year for most cars from 2017, except in the first year when tax will remain linked to the CO2 emissions. The first MOT for a vehicle will come after four years, not three.

Cities and counties in the north will be given more control over local transport through £30million of funding for Transport for the North over three years.

Public-sector pay will increase by one per cent a year for four years from 2016/17.

Introducing his budget, Mr Osborne said: “This is the new settlement. A Budget that sets out a plan for Britain for the next five years to keep moving us from a low-wage, high-tax, high-welfare economy; to the higher-wage, lower-tax, lower-welfare country we intend to create.”