The 10 things you need to know about the Budget

Weber Shandwick’s political experts consider the 10 things that you need to know about today’s Budget.

This was the Budget that George Osborne has been hoping to deliver for the past five years. The first Budget delivered by a Chancellor in a Conservative majority government for almost two decades and the first that Osborne has delivered without the Lib Dem brake.

Osborne’s often quoted economic analogy is to “fix the roof while the sun is shining”. So in light of the sizzling heatwave we’ve been experiencing, this was his opportunity.

The Budget reflected the Chancellor’s political self-belief, following an election victory in which economic competence played a major role and a reshuffle that saw further extension of his patronage, and economic self-confidence, happily reeling off a list of strong economic numbers. The Emergency Budget of 2010 allowed the Chancellor to set the narrative for most of the last Parliament – for five years Conservatives repeated the mantra of ‘Labour’s mess’ and Tory plan to clear it up and the opposition failed to challenge this narrative with any coherence.  He described the Budget as one for “working people”, based on security and “finishing the job”.

He will be hoping that today’s Budget also sets the tone for the rest of the Parliament. As was the case in 2010, Labour are intellectually paralysed by defeat and are looking inwards. The Liberal Democrats retreat from governing party to minnows means they’re still in a state of shock. For now, the stage is almost free for Osborne and the Conservatives –  and this Budget reflected that fact. It was an attempt to place a uniquely Conservative imprint, set the narrative for the next five years and trip opponents up in a variety of ways. The introduction of a ‘National Living Wage’ at the same time as cutting tax credits is a real attempt to set the political weather.

In this briefing, Weber Shandwick’s political experts consider the 10 things that you need to know about today’s Budget – what it means for politics and for your business. If you’re interested in a personal briefing on the impact of the Budget, please contact David Skelton, our Head of Public Affairs – dskelton@webershandwick.com.

 

1. Introducing a ‘National Living Wage’ is a bold move to both steal Labour’s clothes and move towards a higher pay society. The ‘rabbit’ out of the hat at the end of the speech took many people by surprise – the introduction of a ‘National Living Wage’ of around 60% of median earnings. It is an attempt to move the burden of tackling low pay from tax credits to profitable employers and the impact on employment is thought to be minimal. While it might be unpopular with some on the Tory right, it seems clear that this policy will be both politically popular, put Labour in a difficult position and alter perceptions of the Conservative brand.

2. The Northern Powerhouse and devolution are central to Osborne’s politics. Mr Osborne has admitted to harbouring a cliché that “if it wasn’t happening in London, it wasn’t happening at all.” Now after viewing the economic data from the Treasury, he can’t get enough of the “buzz and the energy” of Northern England! He regards the Northern Powerhouse as a central part of his politics and has said that regionally rebalancing the economy was a major reason for him wanting to remain as Chancellor. The Northern Powerhouse was a big theme of this Budget – with more devolution to Northern authorities, particularly to Manchester, and an ‘Oyster’ style system for Northern transport, as Osborne seeks to turn around the UK’s historically centralised state. The Budget announced a consultation on devolving power over Sunday trading law to elected mayors, and also to local authorities.

3. Deficit reduction will be at the same pace as in the last Parliament and productivity growth is also a priority. The Chancellor wants to continue the perception of him as reducing the deficit and being able to take difficult decisions in order to eliminate the deficit by 2019/20. His emphasis on the need for a “new political settlement” across the political spectrum was clear for all to see. He has also continued to use the phrase “full employment”, with a target of creating two million jobs and emphasised his goal to tackle the UK’s historic problem of low productivity. Corporation tax will be cut to 19% in 2017 and 18% by 2020 in an attempt to increase competitiveness. New planning reforms to speed up house-building have been promised later in the week.

4. The lowering of the benefits cap and changes to Housing Benefit sees the Chancellor trying to redefine ‘fairness’ in welfare. Families living outside of Greater London are to be capped at £20,000 a year. “We do have to look at the welfare system and make sure it is fair for working people. It is not fair, for example, that people out of work can earn more than people in work,“ Mr Osborne said on the BBC’s Andrew Marr Show on Sunday. The changes are an attempt to ‘double down’ on a policy that was particularly popular during the last parliament. Housing benefit has also been scrapped for 18-21 year olds claiming jobseekers allowance. Instead they will receive a ‘youth allowance’ set at the same level as JSA (£57.35 for those aged 16 to 24).

5. Tax credit cuts see the Chancellor trying to make the ‘tough choices’ early and move from benefits to a high wage, high productivity economy. £12 billion in welfare cuts were promised  An Institute for Fiscal Studies (IFS) idea to return tax credits to 2003/4 levels, plus inflation – saving £5 billion. According to the IFS, changes would cut entitlements for about 3.7 million low-income families by about £1,400 a year. Around four million people receive them, getting £545 per year as a flat rate payment, plus up to £2,780 per child. The Chancellor suggests that the overall impact of his changes will save £9 billion. The Prime Minister has always been keen to put an end to what he calls the “benefits merry-go-round”. The introduction of the National Living Wage is also an attempt to minimise the impact of tax credit cuts on working households, with the Treasury arguing that eight out of 10 households will benefit.

6. Reduction of pension contribution tax relief  and increasing tax on non doms represents Osborne’s counter-intuitive side. In the last Parliament, measures like  stamp duty reforms, the ‘Google tax’ and cutting down on tax evasion represented Osborne trying to break the ‘party of the rich’ perception. This has continued in this Budget, with measures around pension tax relief for those with an income of above £150,000 a year to be reduced. The change is expected to raise £1 billion, which will fund plans to make more family homes exempt from inheritance tax. The abolition of permanent non-dom status is another attempt by Osborne to go beyond the predictable.

7. Raising the inheritance tax threshold is Osborne fulfilling a long-held promise. Arguably, George Osborne’s vow to raise the inheritance tax threshold did more than anything else to prevent Gordon Brown calling an early election in 2007. Now, with the Liberal Democrats no longer in government, he’s able to fulfil that promise and throw red meat to Tory backbenchers and the mid-market newspapers. The Chancellor will raise the inheritance tax threshold to £1million for married couples by 2017. The inheritance tax policy will be funded by limiting the amount of tax relief on pension contributions given to those earning more than £150,000 a year. People who want to downsize but are worried that their families will miss out on the benefits of the new tax break will be protected. Writing in The Times, Mr Cameron and Mr Osborne stated: “As we promised in our manifesto, we’ll take the family home out of inheritance tax for all but the richest.”

8. Increasing the personal allowance remains a flagship policy. With a further allowance increase, Osborne is attempting to portray himself as on the side of working people. The personal allowance will rise from £10,600 to £11,000, with a commitment to legislate so that the threshold increases in line with the Minimum Wage. This applies to everyone earning up to £100,000 and, taken in tandem with an increase in the National Minimum Wage and the ‘National Living Wage’ is an attempt by Osborne to rebrand the Conservatives as a party of working people.

9. Free TV licences for the over-75s will now be funded by the BBC in a move that will please the Tory right. The move will be phased in over 2018-19, with sole responsibility from 2020-21. Legislation will be brought forward in the next year to “modernise the licence fee” to cover public service broadcast catch-up TV and is aimed at charging people who opt to use the iPlayer. The BBC licence fee of £145.50 is also expected to rise in line with the consumer price index (CPI) measure of inflation.

10. This was every inch a political budget. The Chancellor, more than anybody else in politics, understands that Budgets are as much political as economic. In the last Parliament he succeeded in putting Labour “on the wrong side of public opinion” on a wide range of issues, particularly austerity and benefit, where policies like the benefits cap had Labour taking positions that polled particularly badly. He has aimed to create similar dividing lines in this budget, with policies like changes in the benefit cap and housing benefit putting Labour leadership contenders under pressure.