Summer Budget 2015 speech
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Issued 8 July 2015
Mr Deputy Speaker,
This is a Budget that puts security first.
It’s a Budget that recognises the hard work and sacrifice of
the British people over the past 5 years and says: we will not put that
at risk, we have a job to do and we’re here to get on with it.
This will be a Budget for working people.
A Budget that sets out a plan for Britain for the next 5 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.
This is the new settlement.
From a one nation government, this is a one nation Budget that
takes the necessary steps and follows a sensible path for the benefit
of the whole of the United Kingdom.
And this is a Budget that can only be delivered because the
British people trusted us to finish the job.
Because they know that the only way to have a strong NHS,
strong schools, and a strong defence is to build a strong economy –
that’s how we were elected, and is exactly what we will do.
Mr Deputy Speaker,
The British economy I report on today is fundamentally
stronger than it was five years ago.
We’re growing faster than any other major advanced economy.
Our businesses have created two million more jobs
Living standards are rising strongly.
Our long term economic plan is working.
But the greatest mistake this country could make would be to
think all our problems are solved.
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.
Britain still spends too much, borrows too much, and our weak
productivity shows we don’t train enough or build enough or invest
This we are determined to change.
We will be bold in transforming education.
Bold in reforming welfare.
Bold in delivering infrastructure.
Bold in building the Northern Powerhouse.
We will be bold in backing the aspirations of working people.
This is a big Budget for a country with big ambitions.
It is a Budget that sets the way to secure Britain’s future.
Mr Deputy Speaker,
Let me turn to the latest forecasts from our independent
Office for Budget Responsibility – and we thank Robert Chote and his
colleagues for their hard work.
We now have Budgets that fit the economic forecasts, instead
of economic forecasts that were fixed to fit the Budget.
At the March Budget it was thought that the British economy
had grown by 2.6% last year.
We now know it grew by 3%.
But the global economic risks are rising.
The US economy has slowed, so too has China.
And even before the Greek crisis intensified this week the
forecasts for global growth had been revised down this year to 3.2%.
It is all the more reason to get our own house in order.
For 2015 the OBR forecast growth at 2.4%
That is faster than America, faster than Germany and twice as
fast as France.
For the second year in a row, Britain is expected to have the
strongest economic growth of any major advanced economy in the world.
In 2016 the OBR have growth unchanged at 2.3% - and it is then
revised up to 2.4% in the following year; a level of strong, steady
growth it predicts for the rest of the decade.
This growth is driven by stronger private consumption, and by
stronger private investment too.
Indeed, business investment is now 31.9% higher than it was in
2010, and is revised up again this year.
Now we need to see investment at home matched by exports
Our decision to become a founder member of the new Asian
Infrastructure Investment Bank is driven by our determination to
connect Britain to the fastest growing parts of the world.
And our decision to seek reform to the EU is driven by our
determination that this part of the world shall not price itself out of
a prosperous future.
Mr Deputy Speaker,
Higher investment leads to more jobs, which brings me to the
OBR forecasts for employment.
Over two million more people have the security of work as a
result of this government’s long term economic plan.
The OBR forecast that under the current economic conditions,
almost a million more jobs will be created over the next five years.
Our ambition is to go further, and create 2 million more jobs
on the road to full employment. To help achieve that progressive goal,
we set out today how we will make work pay.
Mr Deputy Speaker,
Jobs are not created by accident.
They are created when businesses have confidence – the
confidence to invest, to grow and to hire.
Confidence that comes because Britain is getting its house in
So we seek to create a country that can truly pay its way.
The budget deficit is now less than half the 10% we inherited.
And economic security is returning
But all that progress is at risk if we do not finish the job
That means more than just eliminating the deficit, it means
running a surplus to get our dangerously high levels of debt down.
That brings me to the first of the key judgements in this
Budget: how fast do we cut the deficit?
And my answer is this: we should cut the deficit at the same
pace as we did in the last parliament.
We shouldn’t go faster. We shouldn’t go slower.
At this pace the national debt is lower as a share of our
national income in every future year than when I presented the Budget
And it is achieved without a rollercoaster ride in public
This is why:
First – our tax receipts are stronger than forecast, showing
the recovery is firmly entrenched.
Second – as a strong majority government we’ve been able to
get on with making extra savings in this financial year.
Third – we can make faster progress in returning our banks,
including RBS, to where they belong – the private sector.
Indeed the sale of government assets this year will deliver
the largest privatisation proceeds of all time, higher than the
previous record in 1987.
Stronger tax receipts, more asset sales and a strong
government that’s getting on with the job – we can achieve a smoother
path to the same destination.
With a surplus a year later in 2019-20, but the national debt
lower and that same surplus higher.
For this is a budget that puts economic security first.
Mr Deputy Speaker,
Many difficult but necessary decisions are required to save
money and this will be done with moderation but determination.
This is a one nation Government that does the best thing for
the economy and the right thing for the country.
This plan is reflected in the forecasts for debt and deficit
produced today by the Office for Budget Responsibility.
The deficit was 10.2% of national income in 2010.
This year it is forecast to fall to 3.7% - one third of the
deficit we inherited.
It then falls again to 2.2% in 2016-17, down to 1.2% in the
year after that, and then to just 0.3% in 2018-19.
The following year, 2019-20 we move into a budget surplus at
0.4%, which is then maintained in the year after that at 0.5% of GDP.
In structural terms, the OBR judge that this will be the
largest surplus in at least 40 years.
Britain back in the black, and in its strongest position for
almost half a century.
This is, of course, all reflected in the amount of cash
Britain has to borrow each year.
In 2010, Britain was borrowing a staggering and unsustainable
£153.5 billion a year.
In March the OBR forecast we would borrow less than half that,
or £75.3 billion, this year.
In this Budget, they have revised borrowing down this year, to £69.5
Borrowing then falls to £43.1 billion next year, £24.3 billion
in 2017/18 and down to just £6.4 billion the year after that.
In 2019-20 we move into a surplus higher than previously
forecast of £10.0 billion which rises to £11.6 billion the year after
that – Britain finally doing the responsible thing and raising more
money than it spends.
Five years ago, we inherited a situation where our national
debt as a share of our national income was soaring.
This year, that national debt share is falling.
Bringing to an end the longest continued rise in our national
debt since the seventeenth century.
It’s falling now, and it continues to fall in every year of
Down from 80.3% this year, to 79.1% next year, then down again
to 77.2% in 2017-18, 74.7% the year after, and 71.5% the year after
that – before falling again to 68.5% in 2020-21.
Britain has turned a corner.
Mr Deputy Speaker, having come this far, there can be no
We should aim for a new settlement across the political
spectrum where it is accepted that:
without sound public finances there is no economic
security for working people,
that those who suffer when governments run unsustainable
deficits are not the richest but the poorest,
and therefore in normal economic times governments should
run an overall budget surplus, so our country is better prepared for
whatever storms lie ahead.
In short we should always fix the roof while the sun is
Today I publish the new Fiscal Charter that commits our
country to that path of budget responsibility.
While we move from deficit to surplus, this Charter commits us
to keeping debt falling as a share of GDP each and every year– and to
achieving that budget surplus by 2019-20.
Thereafter, governments will be required to maintain that
surplus in normal times - in other words, when there isn’t a recession
or a marked slowdown.
Only when the OBR judge that we have real GDP growth of less
than 1% a year, as measured on a rolling four-quarter basis, will that
surplus no longer be required.
The Chancellor of the day will have to set out their plan with
clear targets to restore the nation’s finances to health – and this
House of Commons will test the credibility of that plan and vote on
It is sensible, pragmatic and it keeps Britain secure.
We will put this new Fiscal Charter to a vote in this House
Mr Deputy Speaker,
In order to meet this new Charter further difficult decisions
need to be taken to live within our means.
We will take these decisions in a balanced and fair way.
I can confirm that the analysis produced today shows that the
richest are paying a greater share of tax than they were at the start
of the last parliament.
And more than that, we are continuing to devote a greater
share of state support to the most vulnerable.
As I said they would – those with the broadest shoulders are
bearing the greatest burden. For we are all in this together.
And, in the last fortnight we’ve seen independent statistics
showing that since 2010, child poverty is down and so is inequality.
That comes on top of a record number of women in work, and the
gender pay gap at an all-time low.
All good news which should be welcomed on all sides of the
Mr Deputy Speaker, the fiscal plan set out in this Budget
requires around £37 billion of further consolidation over the
Today I set out how we will find just under half of that – £17
We’ve found annual savings of £12 billion from welfare and £5
billion from tackling tax evasion, avoidance, planning and imbalances
in the tax system.
The other half will largely come from government departments
and will be set out at the Spending Review that the Chief Secretary and
I will conduct this autumn.
However, no year will see cuts as deep as those required in
2011-12 and 2012-13.
Of course, I am conscious that a huge amount has already been
done to increase efficiency across Whitehall – with administrative
budgets down by over 40% in real terms.
But there’s still much more we can do.
There is also a simple trade-off between pay and jobs in many
I know there has already been a period of restraint, but we
said last autumn that we would need to find commensurate savings in
So to ensure we have public services we can afford, and
protect more jobs, we will continue recent public sector pay awards
with a rise of 1% per year for the next four years.
Mr Deputy Speaker,public spending should reflect public
priorities – and we have to make choices.
Our priority is the National Health Service.
We will fund fully the plan the NHS has itself produced for
its future – the Stevens Plan.
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 terms by 2020.
It’s proof that you can only have a strong 7-day NHS if you
have a strong economy.
Mr Deputy Speaker, I’ve set out the difficult choices we’re
going to face on government spending, and the priority we will accord
to our national health service.
I turn now to combatting tax evasion, avoidance and aggressive
In Budget after Budget, we have done more to combat this than
any government before us.
We inherited a system where bankers boasted of paying lower
tax rates than their cleaners, and some multinationals shifted all
their profits offshore.
We’ve stopped these blatant abuses that were allowed to
flourish, and many others.
But we promised the British people we would do more – and find
a further £5 billion a year, and I can confirm we have done so.
We’re boosting HMRC’s capacity with three quarters of a
billion pounds of investment to go after tax fraud, offshore trusts and
the businesses of the hidden economy, tripling the number of wealthy
evaders they pursue for prosecution – raising £7.2 billion in extra tax.
We’re going to change the law to stop the use of losses which
abuse our controlled foreign companies regime, and make sure investment
fund managers pay the full capital gains tax rate on their carried
We’ll stop corporates artificially increasing the value of
stock for tax purposes, and to focus the employment allowance on
employment – we’re restricting it so that companies where the director
is the sole employee will no longer be able to claim.
We’re consulting today on how to deal with the increasing
abuse of the rules around disguised employment when working through a
personal service company.
And we’re going to add tough new penalties to our General
Anti-Abuse Rule, and name and shame serial users of failed tax
These people should have nowhere to hide.
Mr Deputy Speaker, the Non-Domicile tax status is a long
standing feature of the UK tax system, in place since 1914, that plays
an important role in allowing those from abroad to contribute to our
economy, before returning to their permanent home – and many countries
have some version of this tax status.
Simply abolishing it altogether, would, as Ed Balls correctly
noted, probably cost the country money.
Many of these people make a considerable contribution to our
public life and to tax revenues.
But there are some fundamental unfairnesses in the non-dom
regime that I am putting a stop to today.
It is not fair that people who are born in the UK to parents
who are domiciled here, can later in life claim to be non-doms and live
It is not fair that non-doms with residential property here in
the UK can put it in an offshore company and avoid inheritance tax.
From now on they will pay the same tax as everyone else.
And most fundamentally, it is not fair that people live in
this country for very long periods of their lives, benefit from our
public services, and yet operate under different tax rules from
Non-dom status was meant to be temporary, but it became
permanent for some people. Not any longer.
I am today abolishing permanent non-dom tax status.
Anyone resident in the UK for more than 15 of the past 20
years will now pay full British taxes on all worldwide income and
We will consult to get the detail right.
All these non-dom measures will come into effect in April
2017, and they will raise £1.5bn in extra tax for the Exchequer over
British people should pay British taxes in Britain – and now
Mr Deputy Speaker, turning to corporate tax rules, we will
also broaden the base for corporation tax by removing, for future
transactions only, the annual deduction for acquired reputational
For big companies with profit over £20million a year, we will
bring forward corporation tax payments dates – so tax is paid closer to
the point at which profits are earned.
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.
Banks make a key contribution to our economy, but also need to make a
It’s important they help pay down the debts built up during
the banking crisis, but equally important they go on creating jobs -
not just in London, but Edinburgh, Leeds, Birmingham, Bournemouth and
across the country.
The new remit I am issuing today for the Financial Policy
Committee highlights the importance of productive investment,
innovation and competition in finance.
Our bank levy was introduced to raise revenue and increase the
stability of balance sheets, and it’s worked – but now it risks doing
harm unless we change it.
So I will, over the next 6 years, gradually reduce the bank
levy rate – and after that make sure it no longer applies to worldwide
But to maintain a fair contribution from the banks, I will
introduce a new 8 percent surcharge on bank profits from the 1st
January next year.
By getting this balance right, it means we’ll actually raise
more from the banks this parliament, but at the same time make our
country a more competitive place to do business.
We’ve taken action to make sure that consumers get a better
deal from another important industry – insurance.
The cost of premiums are down for families.
And today we’re announcing a major review of the regulation of
claims management companies and we’ll cap the charges they can apply to
Britain’s insurance premium tax is well below tax rates in
many other countries.
I am therefore today raising insurance premium tax – which
applies to only one fifth of all premiums – to 9.5%, effective from
With these measures I am putting in place an approach for
taxing banks and insurers over this Parliament which is sustainable,
stable and fair.
Mr Deputy Speaker, in each year, we’ve been able to use money
from the banking fines paid by those who represent the worst of British
values to support those in uniform who demonstrate the best of British
Today we announce funding for the Defence Medical Welfare
Service and the Royal Commonwealth Ex-Services League.
We’re supporting the incredibly courageous members of our
Special Forces who are injured and, in the 75th Anniversary of the
Victoria Cross and George Cross Association, quadrupling the annual
annuity we pay to those who demonstrated the highest valour and who I
had the honour of meeting yesterday.
In the week of the poignant anniversary of the 7/7 attacks, we
should recognise too our victims of terrorism overseas have no
We will now fund one, as well as a specific memorial to those
murdered in Tunisia.
We’re committing £50 million to expand the number of cadet
units in our state schools to 500, prioritising schools in less
And we’re going to support the Children’s Air Ambulance by
funding an extra helicopter.
Mr Deputy Speaker, in every Budget I also find an opportunity
to fund the commemoration of famous events from our history and the
buildings that symbolise them.
This Budget is no exception.
The RAF’s Group Fighter Command Centre in West London was the
place where the Battle of Britain was directed from – and it badly
I want to thank the new Member, my Honourable Friend for
Uxbridge, for bringing to my attention the dilapidated state of his
Let its renovation stand as a monument to the heroes of the
Battle of Britain and the days when aeroplanes flew freely over the
skies of west London.
Mr Deputy Speaker, I turn now to the great economic challenge
we face on productivity.
For this is the key to delivering the financial security
families see when living standards rise.
And it will ensure Britain becomes what we want it to be – the
most prosperous major economy in the world by the 2030s.
That is within the grasp of our generation, provided we take
the big decisions.
On Friday we will set out our Plan for Productivity, to help
realise this ambition.
And I want to thank my new Treasury colleague - Jim O’Neill –
for his work as a world leading economist in putting it together.
Major British businesses led by Sir Charlie Mayfield, have
told me they want to be part of the solution to this great challenge
and we very much welcome that.
So let me today set out the key parts of that plan.
Four fifths of all journeys in this country are by road, yet
we rank behind Puerto Rico and Namibia in the quality of our network.
In the last 25 years, France has built more than two and a
half thousand miles of motorway – and we’ve built just 300.
In the last Parliament I increased road spending, even in
difficult times, and set out a plan for £15bn of new roads for the rest
of this decade.
But we need a long term solution if we’re going to fix
Britain’s poor roads.
Vehicle Excise Duty was used to fund our roads, but not
And because so many new cars now fall into the low carbon
emission bands, by 2017, over three quarters of new cars will pay no
VED at all in the first year.
This isn’t sustainable and it isn’t fair.
If you can afford a brand new car, including some of the most
expensive models available, you can pay no VED.
If you can only afford an older, second-hand car, you have to
pay more tax.
So this is what we’ll do.
From 2017, for brand new cars only, we will introduce new VED
The duty in the first year will be set according to emissions,
like today, but updated for new technology.
Thereafter there will be three duty bands – zero emission,
standard and premium.
For standard cars – that covers 95% of all cars sold in the UK
– the charge will be £140 a year.
That’s less than the average £166 that motorists pay today.
There will be no change to VED for existing cars - no one will
pay more in tax than they do today for the car they already own.
In total we’ll only raise the same amount of revenue from VED
in the future that we do today – but that revenue will be secure for
the long term.
And I will return this tax to the use for which it was
I am creating a new Roads Fund.
From the end of this decade, every single penny raised in
Vehicle Excise Duty in England will go into that Fund to pay for the
sustained investment our roads so badly need.
We’ll engage with the Devolved Administrations on how the
money is allocated there.
Tax paid on people’s cars will be used to improve the roads
they drive on.
It is a major reform to improve the infrastructure and
productivity of our economy – and deliver a fairer tax system for the
We will consult on extending the deadline for new cars and
motorbikes to have their first MOT test from 3 years to 4 years, which
would save motorists over £100m a year.
I can also confirm that there will be no changes to the plans
for fuel duty I set out in March – fuel duty will remain frozen this
Mr Deputy Speaker, productivity means building more roads, it
also means giving people the skills they need to secure a better job.
It is to our national shame that we are almost the only
advanced country in the world where the skills of our 16 – 24 year olds
are no better than our 55-64 year olds.
The education reforms we started in the last parliament have
begun to address this problem.
And we’re going further in this parliament by tackling the
coasting schools that simply aren’t good enough.
We’ve already doubled the number of apprenticeships to 2
million – now we’re committed to 3 million more.
To fund those apprenticeships and make sure they’re of high
quality, we have to confront this truth.
While many firms do a brilliant job training their workforces;
there are too many large companies who leave the training to others and
take a free ride on the system.
So we are going to take a radical, and frankly long overdue
We are going to introduce an apprenticeship levy on all large
Firms that offer apprenticeships can get more back than they
Britain’s great businesses training up the next generation.
3 million more apprenticeships with the security that will
The money will be directly controlled by employers and we’ll
work with business on how to do this, it’s exactly the sort of bold
step we need to take if Britain is going to raise its game.
Next we’ve got to secure the success of our university sector,
which is one of the jewels in the crown of the British economy.
When we reformed student funding in the last Parliament we
were told by those who so opportunistically opposed us that it would
put people from low income backgrounds off from going to university.
Instead we now see a record number of these students applying
It is a triumph of progressive reform.
Now we are removing the artificial cap on student numbers so
we don’t have to turn away people from our universities who want to go
and have the right grades.
But we can’t afford to do this unless we tackle the cost of
student maintenance grants – that is set to almost double to £3bn over
There’s also a basic unfairness of asking taxpayers to fund
the grants of people who are likely to earn a lot more than them.
The government of 1997-2010 actually abolished these grants,
before reintroducing them, and now they’ve become unaffordable.
If we don’t tackle this problem then our universities will
become underfunded and our students won’t get places – and I’m not
prepared to let that happen.
So, from the 2016-17 academic year we will replace maintenance
grants with loans for new students – loans that only have to be paid
back once they earn over £21,000 a year.
And to ensure university is affordable to all students from
all backgrounds, we’ll increase the maintenance loan available to
£8,200 – the highest amount of support ever provided.
To ensure our university system is sustainable, we’ll consult
on freezing the loan repayment threshold for five years – and we’ll
link the student fee cap to inflation for those institutions that can
show they offer high-quality teaching.
And we’ll open the whole sector to new entrants who can
deliver the highest standards.
It’s a major set of reforms to make sure Britain continues to
have the best universities in the world.
It is fair to students.
Fair to taxpayers.
And vital to secure our long term economic future
Mr Deputy Speaker, Britain’s weak productivity is also driven
by the fact that too much of our economic strength is concentrated in
this capital city.
This is unhealthy and unproductive, and we must achieve a
better settlement for the future.
Not by pulling London down.
One of the first pieces of advice I received in the Treasury
was to cancel the plan for the Crick Institute, Tate Modern extension
and Crossrail – but I rejected that advice, because I’ve always
believed it’s to our nation’s great advantage that we have one of the
world’s great capitals.
Now we’re working with the Mayor on what this city will need
in the future, with projects like Crossrail 2 and the exciting
development of the Olympic village.
But what really drives this government, is building up other
parts of our United Kingdom, as a balance to London’s strength.
For Scotland, we’re now delivering – as promised – major
devolution of tax and welfare powers.
The Scottish Government will soon have to answer the question;
“you’ve got the powers, when are you going to use them?”
In Wales, we are honouring our commitments to a funding floor
and to more devolution there – and investing in important new
infrastructure like the M4 and the Great Western Line.
And in Northern Ireland, we are working with all parties to
deliver the ‘Stormont House Agreement’ and sustainable public finances
Devolution to the nations of the United Kingdom is well
In my view devolution within England has only just begun.
Today we go further in building the Northern Powerhouse.
I can today announce that I have reached agreement with the
leaders of the 10 councils of Greater Manchester to devolve further
powers to the city.
These include putting fire services under the control of the
new Mayor, establishing a land commission in the city, and further
collaboration on children’s services and employment programmes.
The historic devolution that we have agreed with Greater
Manchester in return for a directly elected mayor is available to other
cities who want to go down a similar path.
I can also tell the house we are working towards deals with
the Sheffield and Liverpool City Regions and Leeds, West Yorkshire and
partner authorities on far reaching devolution of power in return for
the creation of directly elected mayors.
We’ve created Transport for the North – now I’m putting it on
a statutory footing and I can announce £30 million of funding to this
new body as it connects northern England together, with seamless
oyster-style ticketing across the region.
Next, with my RHF the Business Secretary and MP for Bromsgrove
– we’re pushing for more powers and responsibility to be devolved to
The massive £7.2 billion investment in transport in the South
West is underway.
And in the first of our new county deals we’re making progress
on a major plan to give Cornwall a greater say over local decisions.
We are, across England, launching a new round of Enterprise
Zones for smaller towns, and to celebrate the Queen’s 90th birthday, a
new set of prestigious Regius Professorships will be created in
universities right across the country.
And to give more power to counties and to our new mayors, we
are going to give them the power to set the Sunday trading hours in
Let’s invest across our country.
Let local people decide
Let’s put the power into the Northern Powerhouse.
Mr Deputy Speaker, another key to raising the productivity of
our country is building more homes and creating a fairer property
This is a government that is unwavering in its support for
That’s why we’re introducing the new Help to Buy ISA this
That’s why we’re giving housing association tenants the right
That’s why we will set out further planning reforms on Friday.
Today I set out three important changes that will address
unfairness in our taxation of property, and put the security of home
First, we will create a more level playing-field between those
buying a home to let, and those who are buying a home to live in.
Buy-to-let landlords have a huge advantage in the market as
they can offset their mortgage interest payments against their income,
whereas homebuyers cannot.
And the better-off the landlord, the more tax relief they get.
For the wealthiest, every pound of mortgage interest costs
they incur, they get 45p back from the taxpayer.
All this has contributed to the rapid growth in buy-to-let
properties, which now account for over 15% of new mortgages, something
the Bank of England warned us last week could pose a risk to our
So we will act – but we will act in a proportionate and
gradual way, because I know that many hardworking people who’ve saved
and invested in property depend on the rental income they get.
So we will retain mortgage interest relief on residential
property, but we will now restrict it to the basic rate of income tax.
And to help people adjust, we will phase in the withdrawal of
the higher rate reliefs over a four year period, and only start
withdrawal in April 2017.
Second, the rent-a-room relief is designed to help homeowners
who rent out a room in their home. It’s a good scheme, particularly in
a world where more and more people are renting out rooms online, but
the relief has been frozen at £4,250 for 18 years.
Next year, we will raise it to £7,500.
The third change fulfils a long standing promise I made.
The wish to pass something on to your children is about the
most basic, human and natural aspiration there is.
Inheritance tax was designed to be paid by the very rich.
Yet today there are more families pulled into the inheritance
tax net than ever before – and the number is set to double over the
next five years.
It’s not fair and we will act.
From 2017, we will phase in a new £175,000 allowance for your
home when you leave it to your children or grandchildren.
It sits on top of the existing £325,000 threshold which will
be fixed until the end of 2020-21.
Both allowances can be transferred to your spouse or partner.
And from today we’ll make sure those who choose to downsize do
not lose any of the allowance from the property they used to own.
But we will taper the relief away for estates worth more than
The result for families is this.
You can pass up to £1 million on to your children free of
No more inheritance tax on family homes.
The tax paid only by the rich.
The security of home ownership restored.
Promise made – promise delivered.
This cut in inheritance tax will be more than paid for by
changes we’ve set out to the pensions tax relief we give to the highest
earners. From next year their Annual Allowance will be tapered away to
a minimum of £10,000.
Mr Deputy Speaker, our pension reforms have given huge freedom
to people who’ve worked hard and saved hard all their lives – and many
thousands are, with the free guidance service we offer, making use of
those freedoms to access their savings instead of buying annuities.
Now it’s time we looked at the other end of the age scale – at
those starting to save for a pension.
For the truth is Britain isn’t saving enough and that’s
something we need to fix in our economy too.
While we’ve taken important steps with our new single tier
pension and generous new ISA, I am open to further radical change.
Pensions could be taxed like ISAs.
You pay in from taxed income – and its tax free when you take
it out. And in-between it receives a top-up from the government.
This idea, and others like it, need careful and public
consideration before we take any steps. So I am today publishing a
Green Paper that asks questions, invites views, and takes care not to
pre-judge the answer.
Our goal is clear: we want to move from an economy built on
debt to an economy built on the more secure and productive foundations
of saving and long term investment.
Mr Deputy Speaker, if Britain wants to produce more, it needs
to invest more.
Many small and medium sized businesses have benefitted from
our enhanced Annual Investment Allowance. This Allowance was set at
£100,000 when we came to office – it is higher now, but without action
it will fall to just £25,000 at the end of the year.
That would especially hit middle-sized companies in areas like
manufacturing and agriculture that we want to do more to build up in
So I can confirm that the Annual Investment Allowance will not
fall to £25,000 but be set at £200,000; this year and every year.
A major, permanent boost to the incentives for long-term
investment by small and medium sized firms in Britain.
The large reductions in tax on North Sea oil and gas I
announced in March are going ahead, and today we broaden the types of
investment that qualify for allowances.
Now we have a long term framework for investment in renewable
energy in place, we will remove the out-dated Climate Change Levy
exemption for renewable electricity that has seen taxpayer money
benefitting electricity generation abroad.
Mr Deputy Speaker, we’ve cut Corporation Tax from 28% to 20%
over the last Parliament, one of the biggest boosts British business
has ever seen.
We can’t take it lower than that while such strong incentives
are created for people to self-incorporate and pay the lower rates of
tax due on dividends.
The dividend tax system was designed partly to offset double
taxation on profits.
But the system has not changed despite sharp reductions in
corporation tax. Lower rates are creating rapidly growing opportunities
for tax planning.
We have inherited a very complex and archaic system.
So I am today undertaking a major and long overdue reform to
simplify the taxation of dividends.
The dividend tax credit will be replaced with a new tax-free
allowance of £5,000 of dividend income for all taxpayers.
The rates of dividend tax will be set at 7.5%, 32.5% and
38.1%. An increase of 7.5% where dividend income exceeds £5,000.
Dividends paid within pensions and ISAs will remain tax-free
and unaffected by these changes.
Those who either pay themselves in dividends or have large
shareholdings worth typically over £140,000 will pay more tax.
85% of those who receive dividends will see no change or be
Over a million people will see their tax cut.
It’s an important reform.
It comes into operation next year, and with our Personal
Allowance and our new Personal Savings Allowance it means that from
April – on top of the New ISA – people will be able to receive up to
£17,000 of income a year tax free.
The reforms I’ve announced to dividend taxation also allow us
to do something more – and go further in creating a Britain that is one
of the most competitive economies in the world.
Mr Deputy Speaker, there are those in this house who said we
were wrong to cut corporation tax in the last parliament – but it
created millions more jobs, brought businesses back to Britain and
increased much needed investment – so I profoundly disagree.
Now at 20% for large and small businesses alike, we have the
joint lowest rate of corporation tax in the G20.
And so there are those who say we do not need to do more. I
profoundly disagree with them too.
This country cannot afford to stand still while others rush
ahead. I am not prepared to see that happen.
Today I announce that I am cutting it again.
Britain’s corporation tax rate will fall to 19% in 2017 and
18% by 2020.
We’re giving businesses the lower taxes they can count on, to
grow with confidence, invest with confidence and create jobs with
A new 18% rate of corporation tax - sending out loud and clear
the message around the world: Britain is open for business.
Mr Deputy Speaker, if we are to build a more productive
economy, and our country is to live within its means, then we have to
make this fundamental change.
We have to move Britain from a low-wage, high-tax,
high-welfare society to a higher-wage, lower-tax, lower-welfare economy.
For Britain is home to 1% of the world’s population; generates
4% of the world’s income; and yet pays out 7% of the world’s welfare
It is not fair to the taxpayers paying for it.
It needs to change.
Welfare spending is not sustainable and it crowds out spending
on things like education and infrastructure that are vital to securing
the real welfare of the people.
We’ve already legislated for savings of over £21 billion in
the last parliament; capped benefits for out of work families; and
started to introduce Universal Credit.
Universal Credit will transform the lives of those trapped in
welfare dependency and deliver real social justice – it’s the result of
the herculean efforts of my RHF the Work and Pensions Secretary.
But to live within our means as a country and better protect
spending on public services, we need to find at least a further £12
billion of welfare savings.
Let me set out the principles we follow – and how they will be
First, the welfare system should always support the elderly,
the vulnerable and disabled people.
We will honour the commitments we made to uprate the state
pension by the triple lock and protect the other pensioner benefits.
The BBC has agreed to take on responsibility for funding free
TV licences for the over 75s and in return we were able to give our
valued public broadcaster a sustainable income for the long term.
In the last Parliament we increased payments to the most
disabled people and we will not tax or means-test disability benefits.
We will increase funding for domestic abuse victims and
women’s refuge centres.
And we are also going to use the remaining funds available in
our Equitable Life Payment Scheme, as it closes, to double the support
we give to those policy holders on Pension Credit who most need this
The second principle we will apply is this.
Those who can work will be expected to look for work and take
it when it is offered.
The best route out of poverty is work.
Our economic plan has created a record number of jobs, and now
a third of a million fewer children are being brought up in workless
It is not acceptable that in an economy moving towards full
employment, some young people leave school and go straight on to a life
So for those aged 18-21 we are introducing a new Youth
Obligation that says they must either earn or learn.
We are also abolishing the automatic entitlement to housing benefit for
18-21 year olds.
There will be exceptions made for vulnerable people and other
hard cases, but young people in the benefit system should face the same
choices as other young people who go out to work and cannot yet afford
to leave home.
To make sure work pays for parents, I can confirm that, from
September 2017 all working parents of 3 and 4 year olds will receive
free childcare of up to 30 hours a week.
Once again, a promise made: a promise delivered.
As a result we now expect parents with a youngest child aged
3, including lone parents, to look for work if they want to claim
All part of our progressive goal of securing full employment
We also want to increase employment among those who have
health challenges but are capable of taking steps back to work.
The Employment and Support Allowance was supposed supposed to
end some of the perverse incentives in the old Incapacity Benefit.
Instead it has introduced new ones.
One of these is that those who are placed in the work-related
activity group receive more money a week than those on Job Seekers
Allowance, but get nothing like the help to find suitable employment.
The number of JSA claimants has fallen by 700,000 since 2010,
whilst the number of incapacity benefits claimants has fallen by just
90,000. This is despite 61% of claimants in the ESA WRAG benefit saying
they want to work.
For future claimants only, we will align the ESA Work-Related
Activity Group rate with the rate of Job Seekers Allowance.
No current claimants will be affected by this change and we
will provide new funding for additional support to help claimants
return to work.
The third principle that we apply to welfare is this: the
whole working age benefit system has to be put on a more sustainable
In 1980, working age welfare accounted for 8% of all public
spending. Today it is 13%.
The original Tax Credit system cost £1.1 billion in its first
This year, that cost has reached £30 billion.
We spend more on family benefits in Britain than Germany,
France or Sweden.
It is, in the words of the RHM for Birkenhead the new Chair of
the Work and Pension Select Committee, simply “not sustainable”.
As Alistair Darling has said, the sheer scale of Tax Credits
is “subsidising lower wages in a way that was never intended.”
So those who oppose any savings to Tax Credits will have to
explain how on earth they propose to eliminate the deficit, let alone
run a surplus and pay down debt.
We will take the following steps to put working age benefits
on a more financially sustainable footing.
Since the crash, average earnings have risen by 11%, but most
benefits have risen by 21%.
To correct that, we will legislate to freeze working age
benefits for four years.
That will include Tax Credits and Local Housing Allowance. And
it means earnings growth will catch up and overtake the growth in
Statutory payments like Maternity Pay and the disability
benefits – PIP, DLA and ESA Support Group will be excluded from the
Mr Deputy Speaker, we are also going to end the ratchet of
ever higher housing benefit chasing up ever higher rents in the social
These rents have increased by a staggering 20% since 2010.
So rents paid in the social housing sector will not be frozen,
but reduced by 1% a year for the next four years.
This will be a welcome cut in rent for those tenants who pay
it and I’m confident that Housing Associations and other landlords in
the social sector will be able to play their part and deliver the
efficiency savings needed.
We also need to focus Tax Credits, and Universal Credit, on
those on lower incomes, if we are going to keep the whole system
affordable and able to support those most in need.
So from next year, we will reduce the level of earnings at
which a household’s Tax Credits and Universal Credit start to be
The income threshold in tax credits will be reduced, from
£6,420 to £3,850.
Universal Credit work allowances will be similarly reduced –
and will no longer be awarded to non-disabled claimants without
The rate at which a household’s Tax Credit award is reduced as
they earn more will be increased, by raising the taper rate to 48%.
The income rise disregard will be reduced from £5,000 to
£2,500 – the same level at which it was originally set in 2003.
Taken all together, the freeze in working age benefits, the
downrating of social rents, and the focus of tax credits and Universal
Credit on the lowest income households will reduce the welfare bill by
£9 billion a year by 2019-20.
The fourth principle we will apply to our welfare reform is
this: the benefits system should not support lifestyles and rents that
are not available to the taxpayers who pay for that system.
We have already introduced a cap on the total amount of
benefits any out of work family can receive, at £26,000.
It encouraged tens of thousands into work.
We will now go further, and reduce the benefits cap from
£26,000 to £23,000 in London, and £20,000 in the rest of the country.
We are also going to require those on higher incomes living in
social housing to pay rents at the market rate.
It’s not fair that families earning over £40,000 in London, or
£30,000 elsewhere, should have their rents subsidised by other working
And we’ll turn support for mortgage interest payments from a
benefit to a loan.
Another decision that most families make is how many children
they have, conscious that each extra child costs the family more.
In the current tax credit system, each extra child brings an
additional payment of £2,780 a year.
It’s important to support families, but it’s also important to
be fair to the many working families who don’t see their budgets rise
by anything like that when they have more children
So this is the balance we will strike:
In future we will limit the support provided through tax
credits and Universal Credit to two children.
Families who have a third or subsequent child after April 2017
will not receive additional Tax Credit or UC support for this child.
Support provided to families who make a new claim to Universal
Credit after this date will also be limited to two children.
And we will make similar changes in Housing Benefit too.
There will be provisions for exceptional cases including
In addition, those starting a family after April 2017 will no
longer be eligible for the family element in Tax Credits.
Nor will new births and new claims be eligible for the first
child premium in Universal Credit.
We will make similar changes in Housing Benefit, by removing
the family premium for children born or claims made after April 2016.
This approach means no family sees a cash loss.
And as promised, child benefit will be maintained.
These changes to Tax Credits are not easy but they are fair,
and they return tax credit spending to the level it was in 2007-08 in
When we came to office in 2010 this country had reached the
point where a benefit that was intended to support lower income
households, was instead available to 9 out of 10 families in this
Now, our properly focussed reformed Tax Credit system will
provide support to 5 out of 10 families – a much more sustainable
balance in our welfare system.
Taken together, all the welfare reforms I have announced will
save £12bn by 2019-20 and will be legislated for in the year ahead,
starting in the Welfare Reform and Work Bill that will be published
Mr Deputy Speaker, we are moving Britain from a high welfare,
high tax economy, to a lower welfare, lower tax society.
The best way to support working people is to let them keep
more of the money they earn.
We promised the British people at the election that we would
introduce a tax lock to prohibit any increase in the main rates of
income tax, national insurance and VAT for the next five years.
We will not only keep that promise, but legislate for it in
the coming weeks.
Our priority is not to raise taxes on working people, it is to
cut their taxes.
In the last Parliament, we raised the tax-free personal
allowance from the £6,500 to £10,600, taking almost four million of the
lowest paid out of tax altogether.
When we went to the British people this May, we said we would
go much further.
Our two commitments were these:
That we would raise the tax free personal allowance to £12,500
– so no one working 30 hours a week on the national minimum wage pays
And that we would raise the threshold at which people pay the
higher 40p rate of tax to £50,000.
These were our priorities at the election – they are the
priorities in this Budget.
For we on this side deliver what we promise. So the rates of
income tax in this Budget remain unchanged – but the thresholds do not.
Today I am taking the first major step to delivering our
I am raising the tax-free personal allowance to £11,000 next
That’s £11,000 you can earn before paying any income tax at
all – boosting wages by over £900 in total – and a down payment on our
goal of reaching £12,500.
We will now legislate so that after that the personal
allowance always rises in line with the minimum wage, and we never ask
the lowest paid in our society to pay income tax.
The higher rate threshold currently stands at £42,385.
I am today raising it to £43,000 from next year.
It marks a strong start to our commitment to raise the
threshold to £50,000.
And it will lift 130,000 people out of the higher rate of
income tax altogether.
A personal allowance of £11,000.
A higher rate threshold of £43,000.
29 million people paying less tax.
A downpayment for a country on the up.
Mr Deputy Speaker, I began this Budget statement saying that I
put security first.
I have set out the steps we take to deliver economic security
of a country that lives within its means and a welfare system we can
But there is also the financial security of families and the
national security of our country.
I turn to that now.
The Prime Minister and I are not prepared to see the threats
we face to both our country and our values go unchallenged.
Britain has always been resolute in defence of liberty and the
promotion of stability around the world. And with this government it
will always remain so.
So today I commit additional resources to the defence and
security of the realm.
We recognise that in the modern world, the threats we face do
not distinguish between different Whitehall budgets – and nor should
So I will guarantee a real increase in the defence budget
every year, and on top of that, create a joint security fund of £1.5
billion a year by the end of the parliament.
The services will have to demonstrate they are delivering real
efficiency and the Strategic Defence and Security Review will allocate
the money in the most effective way.
I am also protecting our overall counter-terrorism effort.
And I reaffirm our international aid budget that saves lives
and supports our values around the world.
I said that this was a Budget that delivered security to the people of
And I said that we had to choose our priorities.
Well, today, this government makes this choice.
Committing to our armed forces who fight to keep us free.
Committing to the intelligence agencies who keep us safe.
Committing to the values we hold dear – and defend around the
And so committing today to meet the NATO pledge to spend 2% of
our national income on defence.
Not just this year, but every year of this decade.
We will ensure that this commitment is properly measured,
because we know that while those commitments don’t come cheap, the
alternatives are far more costly.
Mr Deputy Speaker, let me turn to the final measure of this
Budget which speaks to the values of this Government.
We have been clear that we want Britain to move from a low
wage, high tax, high welfare economy, to a higher wage, lower tax,
lower welfare society.
I have set out my plans to move us to lower welfare and lower
That leaves us the challenge of higher wages.
It can’t be right that we go on asking taxpayers to subsidise,
through the tax credit system, the businesses who pay the lowest wages
That subsidised low pay contributes to our productivity
The government is against against unfair subsidies wherever we
In the last five years we’ve taken the tough choices to drive
down our borrowing, make our business taxes competitive and reform
It’s because we’ve taken these difficult decisions, and
overcome the opposition to them, that Britain is able to afford a pay
Because let me be clear: Britain deserves a pay rise and
Britain is getting a pay rise.
I am today introducing a new National Living Wage.
We’ve set it to reach £9 an hour by 2020.
The new National Living Wage will be compulsory.
Working people aged 25 and over will receive it.
It will start next April, at the rate of £7.20
The Low Pay Commission will recommend future rises that
achieve the Government’s objective of reaching 60% of median earnings
That is the minimum level of pay recommended in the report to
the Resolution Foundation by Sir George Bain – Chair of the Low Pay
Let me address the impact on business and employment.
The OBR today say that the new National Living Wage will have,
in their words, only a “fractional” effect on jobs.
The OBR have assessed the economic conditions of the country,
and all the policies in the Budget.
They say that by 2020 there will be 60,000 fewer jobs as a
result of the National Living Wage but almost 1 million more in total.
They also estimate that the cost to business will amount to
just 1% of corporate profits. To offset that I have cut corporation tax
To help small firms I will go further now and cut their
national insurance contributions.
From 2016 our new Employment Allowance, will now be increased
by 50% to £3,000.
That means a firm will be able to employ 4 people full time on
the new National Living Wage and pay no national insurance at all.
And let’s be clear what it means for the low paid in our
Two and a half million people will get a direct pay rise.
Those currently on the minimum wage will see their pay rise by
over a third this Parliament, a cash increase for a full time worker of
In total it’s expected that 6 million people will see their
pay increase as a consequence.
And taken together with all the welfare savings and the tax
cuts in this Budget, it means that a typical family where someone is
working full time on the minimum wage will be better off.
The Budget today puts security first.
The economic security of a country that lives within its means.
The financial security of lower taxes and a new National
The national security of a Britain that defends itself and its
A plan for working people.
And I commend this Budget to the House.
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Article Published/Sorted/Amended on Scopulus 2015-07-08 14:35:15 in Tax Articles