What could the first government budget after the election hold for you
Wednesday 8 July was the first Conservative party budget in 18 years and many of the party’s election promises were announced.
What has been announced?
The top line announcements
- Britain ‘back in the black’ – The deficit was 10.2% in 2010, this year it is due to fall to 3.7%, then to just 0.3% in 2018/19, moving into budget surplus in 2019/20
- Annual savings of £12bn from welfare, and £5bn from tax adjustments
- NHS – Will get £10bn more per year in real terms
- Devolution has ‘only just begun.’ Powers to be further devolved to the Greater Manchester area
Pay
- New national living wage – £9 an hour by 2020. It will be compulsory to all businesses and eligible to those over 25, starting at £7.20 from next April
Tax changes and consumer rules
- Tax-free personal allowance threshold will be raised to £11,000 next year, the higher rate threshold will be £43,000 from next year.
- Inheritance tax – Up to £1 million can be passed on to children without paying inheritance tax, with an additional £125,000 allowance for transferring a family home.
- Dividends tax – New tax-free allowance of £5,000
- Corporation tax rate to fall to 18% be 2020 and bank levy rate to be reduced over the next 6 years, but a new 8% surcharge on bank profits to be introduced
- Boosting HMRC capacity to go after tax evasion, and abolishing permanent ‘non-dom’ tax status
- Major review of claims management companies with caps to be put in place
Transport
- Transport – Vehicle excise duty to be levelled at £140 a year for the majority of cars, fuel duty will remain frozen
Students and young people
- Student maintenance grants from 2016/17 to be replaced with loans for new students due to be paid back when they earn over £21,000 a year
- Apprenticeship levy on all large firms leading to 3 million more apprenticeships
Home owners
- Mortgage interest relief for buy to let landlords to be limited to the lower rate of tax (20%).
Welfare reforms
- Welfare bill to be reduced by £9bn a year by 2020
- Those aged 18 to 21 will not be able to go on benefits under an ‘earn or learn’ initiative, working age benefits to be frozen for four years, including tax-credits
- Rents in the social housing sector will be reduced by 1% a year for the next four years
- Employment and support allowance to be reduced – Reduce the income threshold for tax credit to £3,080,
- Working parents to receive up to 30 hours per week free childcare for 3 to 4 year-olds
- Benefits cap to be reduced to £23,000 in London and £20,000 in the rest of the country
- Tax and universal credit support to be limited to two children after April 2017
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What was leaked before the budget?
While much of the Government’s 2015 Budget is a closely guarded secret, there were a few things that have already made public beforehand.
It’s expected to be mainly a budget of cuts, as Chancellor George Osborne reduces government spending by £12 billion as part of the Conservative plan to eliminate the public deficit.
Much of the money is expected to come out of the welfare budget in the form of caps on housing benefit and cuts to tax credits.
Although, in an attempt to raise additional funds, Osborne has made it clear that he intends to crack down on an estimated £5 billion of tax evasion by targeting wealthy individuals with “non-domiciled” status.
Election promises to uphold
The Conservative Party also made the following promises during the election, which they are now likely to implement:
- No raises in VAT, National Insurance or Income Tax
- Raising the tax-free personal allowance to £12,500, and the 40% tax threshold to £50,000
- Expanding the Help to Buy scheme, including the introduction of Help to Buy ISAs to help first time buyers
- Introducing a personal savings allowance from 2016 for the first £1,000 (£500 for higher rate tax payers) of interest earned
However, not all of these may be implemented in the summer budget.
Welfare cuts
The 2015/16 welfare budget totals £220bn. Osborne has intimated that cuts are most likely to come out of tax credits and housing benefits.
It has already been made clear that the benefits cap per household will fall from £26,000 to £23,000 in London, and to £20,000 in the rest of the UK.
Child tax credits are going to be limited to only two children per family.
Pension tax relief reduction
The Government is expected to cut tax relief available to the highest earning pensioners to £10,000 from £40,000 a year, on a sliding scale.
Housing benefit reforms
Osborne is to announce that from 2017-18, those who live in housing association and local authority properties and earn above £40,000 (London) or £30,000 (rest of England), are to be charged a ‘market rent’.
Inheritance tax threshold raised to £1 million
The inheritance tax threshold is set to increase £1 million for couples from 2017.
This new ‘family home allowance’ is to be worth £175,000 per person and comes in addition to the existing £325,000 tax free allowance.
Effectively this means the estates of individuals who pass on assets worth up to £500,000, including a home, will be no inheritance tax.
Where to find out more about the budget
The Government’s dedicated Budget website contains more detailed information and the full figures and releases on the July Budget.
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Read more…
- Election 2015: What the party manifestos promised – look back at the Conservative manifesto promises for personal finances
- Budget 2015 March – What it means for you The March 2015 budget was the last before May’s General Election