Have the Conservatives gone further than Labour dared to go? On the face of it, the extraordinary rise in the minimum wage, the broadside against landlords, the rise in personal allowances and the cuts in social housing rents and car duty will make this budget hugely popular, while providing ample political cover for slashing tax credits. But if you look below the bonnet of the announcement, you may well begin to splutter.
The new minimum wage will be worth just shy of £15,000 a year from next April, a huge £1,500 boost to someone on the minimum wage today who works 40 hours a week. Currently, the minimum wage is £6.50 an hour, but the new living wage will be £7.20 from next April, rising to £9 in 2020 – putting the 40-hour-a-week employee on £18,720 a year. To give this anything other than a warm welcome would be churlish.
But now for the caveats. This new living wage will be for the over-25s only, which will exclude many on ultra-low pay currently. This carries on the Conservatives’ curious campaign against the young, who will also be denied housing benefit. The minimum wage was due to rise to £6.70 in October in any case, and while George Osborne may have appropriated the language of the living wage campaign, his promises fall way short of what they say is needed – £7.85 an hour outside London and £9.15 in the capital. Furthermore, campaigners say those wage levels should be brought in immediately, not in 2020.
Meanwhile, Osborne’s promise to give Britain a pay rise will ring hollow with nurses and other public sector workers, who will receive increases of just 1% for the next four years. Given that inflation is expected to return to 2% a year, what public sector workers are looking at is four years of real-terms pay cuts.
The attack on landlord tax reliefs left some campaigners speechless. Only this morning, one pressure group was noting how so many Tory MPs are buy-to-let landlords and that the prospects for any hope for generation rent were forlorn. Then along comes a Conservative chancellor who makes the first major tax change to buy-to-let since it burst on to the property market in the mid-1990s. Mortgage tax relief for owners of buy-to-let properties will be gradually reduced, although not axed altogether, in measures the campaign group Priced Out “warmly welcomed”.
It is not just mortgage tax relief that is being cut, but also the amount landlords can claim for wear and tear. Landlords will also be unable to line their pockets with ever rising amounts of housing benefit. At last, first-time buyers will be able to purchase a home without being outbid by wannabe landlords with the maths stacked in their favour.
But there is a sting in the tail. The vast PR machine that has supported the dizzying growth of Britain’s rental sector is already warning that rents will have to rise to make up for the loss of landlords’ tax benefits. Fewer homes, they add, will be built for rent. Some are even warning of a property price crash as landlords queue up to sell – just as the first interest rate rises start to come through next year. But there will be few tears if property prices stall, coming on the day Halifax reported that the market had surged again, with average prices breaking the £200,000 barrier.
The chancellor promised a cut in vehicle excise duty on average cars from £166 to £140, said MOTs will not be needed until a car is four years old, rather than three, and that there will be a surge in spending on roads.
But what the budget documents released after the speech show is that motorists are actually going to be paying a lot more tax. One of the biggest lines of increased tax revenue will come from the rise in insurance premium tax from 6% to 9.5%. This will add between £12 and £15 to the typical car insurance premium and rake in about £1.5bn for Osborne.
The shock announcement on the minimum wage meant income tax and national insurance took second billing, if not third. The rise in the basic personal allowance to £11,000 comes a year earlier than previously said, and will be worth an extra £60 a year for most taxpayers. Osborne also began to reverse the long drag of more and more people falling into higher-rate tax, promising to lift 130,000 people out of it with boosted allowances. But it is time to scotch the idea that middle Britain pays 40% tax. The median annual income in the UK for a full-time worker is £26,936, or about £14,000 shy of paying the 40% tax rate.
However, immediate praise for the budget from some commentators should not mask the intense attack on welfare. A two-child family where both adults are unemployed will see their income plummet from £26,000 to £20,000 a year under the new benefit caps. The loss of tax credits to working families with more than two children could lop £60 to £70 a week off already heavily strained household finances. And as someone who comes from a family of seven children, I found Osborne’s rhetoric against larger families deeply uncomfortable. Quite why has he focused the welfare cuts so heavily on families with three children or more? How very big and bold of him.
