"For once, the spin lived up to the reality," said the BBC's Nick Robinson. Britain's first Tory Budget in almost 20 years contained several eye-catching measures aimed at creating a "high-wage, low-tax, lower welfare economy", as Chancellor George Osborne put it. A crackdown on welfare, including a four-year freeze of working-age benefits, including tax credits, will be offset by a new national minimum (or "living") wage. Corporation tax is being cut again, while non-dom status will no longer be inheritable and will be abolished for those who've lived here for 15 of the last 20 years. Other moves include cutting mortgage interest tax relief on buy-to-let landlords, changes to dividend taxation, and an inheritance tax allowance boost.
What the commentators said
From the macroeconomic perspective, said Capital Economics, the big question was whether Osborne would "smooth the profile of government spending cuts" to avoid the big inflation-adjusted falls originally planned for the next two years. He did. The deficit is now only expected to turn into a surplus in 2019/2020, rather than the year before. The well-trailed £12bn of welfare cuts will happen over three years, not two. Spending in the next few years will be flat in real (after-inflation) terms we've gone from "rollercoaster to monorail".
All told, the balance of spending cuts and tax hikes will boost revenues by £18.9bn by 2020/2021, said Sky News's Ed Conway. Impressive as this is, it's barely half of what the 2010 emergency budget raised. The Office for Budget Responsibility expects the deficit to be gone by 2019-2020, when we're supposed to run a surplus of 0.4% of GDP.
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The Budget's big surprise, the new minimum wage, was "a clever piece of low-cost politics", said Fraser Nelsonon spectator.co.uk. Some people will become unemployable, but the view is that this is a price worth paying for making everyone else better off. And the aspiration to hit £9 an hour by 2020 isn't as high as it appears at first that's closer to £8 in today's money. The government will save on tax credits, while workers will get a pay rise (although some will be clawed back in taxes). Firms' higher wage bill will be alleviated by lower corporation tax.
In any case, firms have done well out of this Budget as a whole, reckoned Fidelity Worldwide Investment's Paras Anand. The tweaks to the bank levy, along with lower corporation tax, suggest "a move to a more overtly pro-business position" compared to the previous coalition government. Another winner form the Budget may be Osborne himself. The bookies now consider him the favourite to win the Tory leadership.
Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.
After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.
His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.
Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.
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