TORY Chancellor Osborne’s Emergency Budget included measures to smash the spending on public services and smash the social security system, with the biggest spending cuts since World War Two.
At the same time working class and poor people will be hammered by his hike in VAT to 20 per cent.
leader Harriet Harman, whilst agreeing that cuts needed to be made, was forced to condemn the measures as ‘wreckless’ and a savage attack on the most needy in society that would wreck any chances of ‘economic recovery’ and throw ‘tens of thousands’ of people out of work.
She condemned the Liberal Democrats for giving up all their election pledges to support the Tories, in return for a few Cabinet posts.
Osborne announced that ex-Labour government minister John Hutton was working with the Tory Lib-Dem coalition to review the entire system of public sector pensions and would report back by September.
Osborne said Britain had ‘the largest budget deficit of any economy in Europe with the single exception of Ireland.’
He said the reason for the Emergency Budget was the ‘fear’ in the international money markets of the ‘sovereign debt’ crisis, saying: ‘Questions that were asked about the liquidity and solvency of banking systems are now being asked of the liquidity and solvency of some of the governments that stand behind those banks.’
He said that even before the Emergency Budget, the new coalition had already acted by:
• identifying £6 billion of immediate cuts;
• halting ‘unfunded’ spending commitments by the previous Labour government (such as cancelling vital aid to Sheffield Forgemasters);
• setting up the Office of Budgetary Responsibility (OBR), ‘immune to the temptations of the political cycle’, which sets the financial guidelines for the government and its programme of savage cuts over the next five years.
‘Early determined action has earned us credibility in international markets,’ said Osborne, stating that ‘market interest rates for Britain have fallen over the last seven weeks, while those of many of our European neighbours have risen.’
But, he continued, without ‘concrete measures’ there would be a ‘catastrophic loss of confidence’ by the world’s major banks and investors in the near future.
‘We cannot let that happen – this is the unavoidable budget,’ Osborne told MPs.
He identified the main problem facing the government as one of creating, ‘An economy where the state does not take almost half of all our national income, crowding out private endeavour.’
Blaming the cuts on the previous government, Osborne said: ‘We are set to miss the “golden rule’’ in this cycle by £485 billion!’
He continued: ‘The international community believes countries with high fiscal deficits need to accelerate the pace of fiscal consolidation. That is precisely what we now propose to do.
‘The formal mandate we set is that the structural current deficit should be in balance in the final year of the five-year forecast period, which is 2015-16 in this Budget.’
He tried to maintain that the government could ‘deal with the debts’ and ‘go for growth’ at the same time and that this would be achieved by a ‘gradual rebalancing’ of the economy, with a greater role for the private sector.
This policy of savage cuts could help keep interest rates ‘lower for longer’, Osborne claimed.
As a ‘rule of thumb’ there is to be a roughly 80-20 per cent split between public spending cuts and tax rises.
In his Emergency Budget, ‘spending would be cut by 77 per cent, while tax revenue would be raised by 23 per cent,’ said Osborne.
He predicted Public Sector Net Borrowing of £149 billion this year, but just £20 billion by 2015-16 and that government borrowing as a percentage of Gross Domestic Product (GDP) would fall from 10.1 per cent this year to just 1.1 per cent by the end of the government’s projected five-year term in office.
This would result in a ‘structural current balance’ of plus-0.8 per cent in 2015-16 compared to minus-4.8 per cent this year.
‘In other words, it will be in surplus,’ Osborne said.
‘Public sector net debt as a share of GDP will be 62 per cent this year, before peaking at 70 per cent in 2013-14.
‘Because of our action today, it then begins to fall, to 69 per cent in 2014-15 and then 67 per cent in 2015-16.
‘As a result of our measures debt interest payments will be £3 billion a year lower by the end of this Parliament.’
Osborne said that, although ‘Current expenditure will rise from £637 billion in 2010-11 to £711 billion in 2015-16’, this is because ‘we inherit a rapidly rising bill for debt interest – a bill that won’t start falling until the debt itself starts to fall.’
To gasps from some MPs, he said: ‘Debt interest payments alone will cost the taxpayer a quarter of a trillion pounds over this period.’
Osborne then proceeded to announce his ‘tough’ medicine of savage cuts and VAT increases.
Like a wolf in sheep’s clothing, Osborne sought desperately to disguise the real level of his cuts, by saying that: ‘Compared to the plans set out by the previous Government (to halve the budget deficit), I am announcing today additional current expenditure reductions of £30 billion a year by 2014-15.
• Capital spending on major projects will be slashed from £69 billion to less than £46 billion by 2014-15.
• The government will sell-off: High Speed 1, its shareholding in NATS, the air traffic control service, and the student loan book, and ‘facilitate’ the privatisation of Royal Mail.
• Cut the budgets of government departments by £61 billion a year by 2014-15 (£244 billion) – ‘an average real cut of around 25 per cent over four years’ for ‘unprotected’ departments.
‘Clearly,’ said Osborne, ‘if we can find any additional savings to social security and welfare beyond those which I will shortly outline, then that will greatly relieve the pressure on these departments.’
Not all departments will receive the same settlement, he said, ‘recognising’ the ‘particular pressures’ on education and the Ministry of Defence.
• Savage cuts to public sector pay and pensions, starting with a two-year public sector pay freeze.
This is to exclude ‘28 per cent’ of public sector workers ‘who earn less than £21,000’ a year, said Osborne, informing MPs that this group would be given a ‘£250 flat pay rise’ for the next two years.
• There is to be a doubling of the ‘operational allowance’ to soldiers to £4,800.
• And a speed-up the raising of the State Pension Age to 66.
Osborne then announced the main plank of his cuts programme – savaging social security, starting with:
• Linking any future ‘up-rating’ of benefits and tax credits to the Consumer Prices Index, rather than the (higher) Retail Price Index.
• Slashing tax credits: cutting payments to families with combined incomes of over £40,000 from next year and ‘aligning’ the thresholds for the child and family element;
• Increasing the ‘taper rate’ at which awards are reduced and removing the baby element for new children from April 2011 and the ‘one-off’ payment to new workers over 50 from April 2012.
• Reducing back-dating from three months to one month and no new tax credit element for infants.
• Abolish the Health in Pregnancy Grant and limit Sure Start maternity grants to the first child only and make single parents ‘look for work’ as soon as their youngest child reaches school age.
Osborne then announced to a storm of protest:
• Child benefit to be frozen for the next three years.
• A massive attack on Disability Living Allowance: by seeking to drastically reduce the number of claimants through a ‘medical assessment’ scheme from 2013 for all new and existing claimants, ensuring that it is only available to those with ‘the greatest needs’.
• Drastic cuts in Housing Benefit – re-setting and restricting Local Housing Allowances, ‘up-rating’ deductions’, reducing certain awards, re-adjusting support for Mortgage Interest Payments, limiting ‘social tenants’ entitlement to ‘appropriately sized homes’.
• Introducing, for the first time, maximum limits on housing benefit, from £280 a week for a one-bedroom property to £400 a week for a four-bedroom property or larger.
‘Our package today reduces the costs of Housing Benefit by £1.8 billion a year by the end of the Parliament, or seven per cent of the total budget,’ Osborne boasted, adding that ‘all these measures… will save the country £11 billion by 2014-15.’
Osborne signalled that this attack on social security for the poorest people in society would be accompanied by a drive to create a low-wage economy, by making it ‘cheaper’ for companies to employ people.
• ‘From April 2011 the threshold at which employers start to pay National Insurance will rise by £21 per week above indexation,’ Osborne said.
‘The cost of hiring people on incomes lower than £20,000 will be less than it is today. And in one move we will have lifted 650,000 employees out of this tax altogether.’
• For good measure, Osborne said that, whilst the unemployed and poor will see social security taken away, the bosses are to be given a four per cent cut in Corporation Tax from 28p to 24p over the next four years to ‘the lowest rate of any major Western economy and the lowest rate this country has ever known’.
• Small companies tax will be cut to 20p, the Enterprise Finance Guarantee Scheme will be ‘extended’ and ‘certain backdated business rate bills’ will be cancelled, including for many businesses in ports.
But there will be cuts in capital and investment allowances from April 2012.
In an effort to try and give an appearance of ‘national unity’ to drive through austerity measures, Osborne said ‘we must remember that this was a crisis that started in the banking sector’ and ‘The failures of the banks imposed a huge cost on the rest of society. . .
‘From January 2011, we will introduce a bank levy.
‘It will apply to the balance sheets of UK banks and building societies, and to the UK operations of banks from abroad.
‘There will be deductions for Tier one capital and insured retail deposits, and a lower rate for longer maturity funding.
‘Smaller banks with liabilities below a certain level will not be liable for the levy.
‘Once fully in place, we expect the levy to generate over £2 billion of annual revenues.’
But he added that: ‘The message I hear from the business community is unequivocal.
‘They want certainty and stability from Government so that they start the long process of rebuilding their businesses.
‘Today I am offering them just that.
‘A five-year plan to reform the corporation tax system, with lower rates, simpler rules and greater certainty.
‘The most fundamental and far-reaching reform of our corporate tax regime in generations.
‘It offers a stable and consistent platform for a private sector recovery.’
Osborne made it clear he would ‘rebalance the economy’, destroying what is left of public services and going towards a country for business and by business, declaring: ‘We will shortly announce a new tax scheme to help create new businesses in those regions where the private sector is not nearly strong enough.
‘Anyone who sets up a new business outside London, the South East and the Eastern region will be exempt from up to £5,000 of employer national insurance payments, for each of their first 10 employees hired.’
He concluded the budget with his VAT tax bombshell, telling parliament: ‘The sovereign debt crisis means we need to reduce the deficit even more quickly in order to protect our economy.
‘And the Office for Budget Responsibility has revealed the size of the structural deficit to be even larger than we feared, £12 billion larger next year.
‘As a result, this Budget announces a further fiscal tightening of £40 billion a year by the end of this Parliament, including welfare and spending measures, over and above the previous Government’s plans.
‘To achieve that additional tightening while maintaining the right “four-to-one” balance between spending and taxation means that I have to announce further tax rises today.
‘On 4th January next year, the main rate of VAT will rise from 17.5 to 20 per cent.
‘This single tax measure will by the end of this Parliament generate over £13 billion a year of extra revenues.
‘The higher rate of insurance premium will also rise from 17.5 to 20 per cent, while the standard rate will increase from five to six per cent.’
Osborne then announced: ‘We will offer a deal to local authorities in England.
‘If you can keep your cost increases low, then we will help you to freeze council tax for one year from next April.
‘It will be one less rising bill for families to worry about – and it will drive value for money throughout all levels of Government.’
Osborne admitted: ‘Some of the richest people in this country have been able to pay less tax than the people who clean for them.
‘That is not fair – and it stems from the avoidance activity that has exploited the wider gap between the rate of capital gains tax and the top rates of income tax.
‘These practices are costing other taxpayers over £1 billion every year.
‘It is therefore right, as set out in the coalition agreement, that capital gains tax should increase in order to help create a fairer tax system.
‘I have listened carefully to everyone’s views and considered all the options.
‘My concern has been to balance the competing demands of fairness, simplicity and competitiveness – and I believe my decision gets that balance right.
‘Low and middle income savers who pay income tax at the basic rate make up over half of all capital gains taxpayers.
‘They will continue to pay tax on their capital gains at 18 per cent.
‘From midnight, taxpayers on higher rates will pay 28 per cent on their capital gains.
‘I have also decided that the Annual Exempt Amount for capital gains tax will remain at £10,100 this year and will continue to rise with inflation in future years.
‘I am acutely aware of how important it is to protect the incentives to succeed in business and to innovate.
‘So to promote enterprise, the 10 per cent capital gains tax rate for entrepreneurs, which currently applies to the first £2m of qualifying gains made over a lifetime, will be extended to the first £5m of lifetime gains.
‘The changes I have made mean that:
• ‘the capital gains of the majority of taxpayers are protected;
• ‘we have a top rate that is in line with our international competitors;
• ‘we keep the system simple and easy for any taxpayer to understand;
• ‘and we reduce the incentive to convert income to capital gains.
‘It is revealing that the great majority of the almost £1 billion of extra receipts we expect to see as a result of this change will come from additional income tax payments.
‘I believe this is the right way to reform the taxation of capital gains.’
Osborne also said he was withdrawing a cut in pension tax relief for higher earners, proposed by the previous government.
Underlining the Tory drive for a low-wage economy, he announced on income tax, he said the threshold before income tax is paid would be raised from £6,475 a year to £7,475 a year from next April – signalling £7,500 a year jobs.
Osborne claimed ‘23 million people who are basic rate taxpayers will each gain by up to £170 a year.’
He said, embracing the rich, ‘the higher rate income tax threshold will have to remain frozen to 2013-14’, whilst saying that the ‘long-term objective’ was to raise the amount earned before income tax is paid to £10,000 a year, from which the poorest workers would have to find all their living expenses!
To hoots of derision, Osborne told the House of Commons: ‘Overall, everyone will pay something, but the people at the bottom of the income scale will pay proportionally less than the people at the top. It is a progressive Budget.
‘Today we take decisive action to deal with the debts we inherited and confront the greatest economic risk facing our country.
‘We’ve been tough but we’ve also been fair.
‘We have set the course for a balanced budget and falling national debt by the end of this Parliament.
‘We have insisted that four pounds of every five needed to reduce our deficit will be found from government spending.
‘We have protected capital investment from additional cuts and got to grips with the soaring costs of welfare.
‘We have provided the foundations for economic recovery in all parts of our nation and given our country some of the most competitive business taxes in the world.’
This savage budget seeks to save capitalism by pauperising the working class, but gives big handouts to big business.
The TUC must be forced to cancel their invite to Cameron to attend their September Congress and to call a general strike to bring down the coalition.