Summer Budget: tax cuts for workers and firms
Osborne ‘gives Britain a pay rise’ with £9 an hour living wage
In a bold Budget statement, he also raised the thresholds on the basic and 40p rates of income tax. He announced a further cut in corporation tax and more help for small firms.
Fuel duty is frozen for this and there will be new vehicle excise duty bands.
Mr Osborne told the Commons that the country’s deficit would fall and until 2020 when it would have a £10 billion surplus.
But his big statement was the introduction of a national living wage which appears to replace the minimum wage and will be set at £7.20 next year, rising to £9 in 2020.
“It is because we have taken difficult decisions that Britain an afford a pay rise,” he said. “Britain deserves a pay rise and Britain is getting a pay rise.”
He said his tax cuts for businesses would help them offset the new living wage.
The personal allowance on the basic rate of income tax will rise to £11,000 next year and to £43,000 on the 40p rate.
He promised an overhaul of taxation on pensions and dividends and confirmed that the inheritance tax allowance will rise to £1 million.
The bank levy will be replaced over six years by an 8% surcharge on bank profits.
Mr Osborne confirmed the higher threshold on inheritance tax and that his £12 billion of welfare cuts would be phased over three rather than two years.
Scotland’s Deputy First Minister and Finance Secretary John Swinney branded the budget as a “con trick” with a big attack on low income households and young people.
Mr Swinney said: “The reality is this budget is an attack on the low paid, the young and those entering the jobs market.
“This budget is a series of con tricks to try and hide the fact that individual households will now bear the brunt of austerity cuts. I support a meaningful living wage paid for by business – one that pays what people need to live, not one that fails to compensate for cuts to valuable tax credits.
“The Chancellor has not even promised to meet the current living wage of £7.85 and under 25’s will face the brunt of cuts but receive no increase in wages.
Business leaders welcomed the tax changes but reaction to the added costs of the living wage and a new levy on firms to create three million apprentices divided those representing larger firms, which felt able to absorb them, and the small business community which expressed some concern.
Simon Walker, director general of the Institute of Directors, said: “In today’s Budget, George Osborne has offered business a new deal on employment. Introducing a national living wage at a significantly higher level than the minimum wage was a dramatic announcement, but in return, companies have been provided with a cut to corporation tax and an increase in the employment allowance.
“We should not understate the boldness of this move, and many businesses will have been taken by surprise, but the IoD accepts that after several years of slow wage rises, now is the time for companies to increase pay.
“Nine in 10 IoD members already pay even their most junior staff the living wage, and will accept this deal from the Chancellor.
“Unfortunately, Osborne has not been quite so bold in all areas. The annual investment allowance has been fixed for five years, but at far too low a rate of £200,000. This will not help as many small and medium sized businesses to invest for the future.
“The 45p tax rate, which raises little, if any extra revenue, has been retained, and the 40p threshold has only nudged up very slightly to £43,000. Meanwhile, the already complex inheritance and pensions tax systems have been further complicated. This Budget was a chance for radical simplification of the tax system which has regrettably been missed.
John Cridland, CBI Director-General, said: “This is a double edged Budget for business. Firms will welcome measures to balance the books and boost investment, but they will be concerned by legislating for wage increases they may not be able to deliver.
“Firms have been unwavering in their support for the Chancellor’s deficit reduction plans and will welcome the clarity that the new fiscal rules provide. Other standout measures include making the Annual Investment Allowance permanent at £200,000, which the CBI called for, as well much-needed investment in our roads network.
“The further reduction in corporation tax is a welcome surprise but tax reductions for employers don’t appear to match the businesses most affected by a rise to £7.20 in the National Minimum Wage next April – a 7% increase.
“The CBI supports a higher skilled, higher wage economy, but legislating for a living wage does not reflect businesses’ ability to pay. This is taking a big gamble that the labour market can absorb year-on-year increases of an average of 6%.
“Firms want to play their part in training up more apprentices but an apprentice levy is a blunt tool. A volunteer army is always better than conscription but the CBI will work with the Government to make the best effect of this measure.”
Bryan Buchan, Chief Executive of Scottish Engineering, said: “On the face of it, the Chancellor George Osborne has given some positive help to manufacturing engineering SMEs in Scotland.”
Andy Willox, the FSB’s Scottish policy convenor, said: “Today’s dramatic budget radically changes the environment in which Scottish small businesses will operate over the next five years. Many small employers will be examining their books over the weeks to come to understand what the changes to business taxation and minimum wages will mean to their operations.
“The understandable governmental drive to boost wages must be accompanied by extra help to make the numbers work in the sectors where we know pay and margins are a problem. Efforts to reduce the tax burden to lessen the impact on small businesses are welcome. However, next year’s national minimum wage increase will be difficult for employers bound into long-term contracts with big business or the public sector.
“We have been supportive of gradual increases in the National Minimum Wage in recent years, to reflect the improvement in the economy. However, we believe annual increases should be set according to the recommendations of the independent Low Pay Commission (LPC).”
Liz Cameron, Chief Executive of Scottish Chambers of Commerce, said: “This has been one of the most densely packed Budgets of recent years, which shifts the goalposts completely in a number of key areas. For businesses, there are pluses and minuses. This is a Budget where the full implications may take some time to digest.
“The creation of a new National Living Wage will come as a bolt from the blue for many employers. Businesses aspire to the best for their employees and most businesses already pay this rate or more, however for some businesses, and especially smaller businesses in some key sectors such as retail and hospitality, wages of this level do not fit within current commercial models. Ultimately, consumers will dictate what is affordable and what is not.”
The Association of Convenience Stores has criticised the Government’s decision to introduce a mandatory living wage for workers over 25 as a reckless measure that will have a significant negative impact on the sector. ACS chief executive James Lowman said: “The introduction of a compulsory ‘Living Wage’ will have a devastating impact on thousands of convenience stores. This will lead to retailers having to reduce staff hours, work more hours in their business and ultimately cancel their investment plans. To introduce this measure with no consultation undermines the independent Low Pay Commission and is a reckless way to impose a massive burden on small businesses.”
Susie Walker, head of tax at Johnston Carmichael, said: “Good news for companies and businesses with corporation tax rates set to reduce. For personal tax, good news today for middle earners and working families, with a raft of measures from increased personal allowances and higher rate thresholds.”
Paul Gallagher, Tax Partner at EY Scotland said: “The Chancellor resembled ‘Michelangelo’ as he re-sculpted the UK tax system, taxing dividends, proposing changes to pensions, adding a new tax on banks, cutting corporate tax rates and restricting interest relief on buy-to-let investments.
“The Chancellor went well beyond what many expected, spanning the whole tax regime, from non-domiciles to Vehicle Excise Duty. He may not have listened to Lord Lawson’s argument on abolishing the 45% income tax rate, but he clearly wanted to emulate his reputation as a man of principle and principled reform.”
Chas Roy-Chowdhury, ACCA head of taxation, said: “We welcome that he took the opportunity to incentivise employers to pay the living wage. During the election campaign he and the Prime Minister spoke about raising wages for all but a commitment to eventually raising the minimum wage. This is the right direction at £9 per hour and increasing the NIC relief to £3,000.
“It was a very pleasing and important message to send to the global business community to continue to reduce corporation tax. Although a reduction to 18% by 2020 will be welcome Mr Osborne could have gone further by continuing the 1% per year reductions throughout this parliament. We are in a competitive global market and the more we can do to encourage all businesses to the UK, the better the long-term tax yields will be.
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