In a deeply political Budget seven weeks ahead of the general election, Chancellor George Osborne offered financial goodies to taxpayers, savers, home-buyers and the regions of Britain, while doing his best to blunt Labour’s lines of attack in what is expected to be the most tightly-fought campaign of modern times.
The Chancellor delivered an effective tax cut to 27 million voters – and took 3.7 million out of income tax altogether – by announcing rises to £11,000 in the personal allowance and £43,300 in the threshold for the 40p higher rate over the next two years.
He abolished tax on the vast majority of savings accounts with a new £1,000 tax-free allowance, and offered Government help worth up to £3,000 for first-time home-buyers saving for a deposit, through the creation of a new Help to Buy Isa.
Improved economic forecasts allowed Mr Osborne to declare that Britain could “walk tall again” after years of austerity.
To Tory cheers, he announced that he had met his 2010 target to have debt falling as a share of national income by the end of this Parliament and that public spending cuts will now end a year earlier than predicted in 2018/19.
He attempted to kill off Labour claims that a Tory government would take spending back to 1930s levels by declaring that by 2019/20 public spending as a share of GDP would be at the same level as 2000 – when Tony Blair was in 10 Downing Street.
But Labour insisted that this was achieved by intensifying the spending squeeze in the next three years, which shadow chancellor Ed Balls said would now be far deeper than those experienced during the austerity programme of the past five years and would almost certainly require Mr Osborne to impose cuts on the NHS or increase VAT. Under the Chancellor’s plans, day-to-day spending as a share of GDP would be as low in 2018 as in 1938, he said.
Mr Balls pointed to the finding of the independent Office for Budget Responsibility that “one implication of the Government’s spending policy assumptions is a sharp acceleration in the pace of implied real cuts to day-to-day spending on public services and administration in 2016/17 and 2017/18”.
Treasury sources said that this calculation did not take into account the £12 billion in savings on welfare promised by the Chancellor, but Labour retorted that Mr Osborne had yet to show how he would achieve this.
In his sixth Budget as Chancellor, Mr Osborne missed no opportunity to take swipes at Labour’s difficulties with second kitchens, white vans and pink buses.
And he made a point of poaching Labour’s plan to cut the maximum size of a tax-free pension pot from £1.25 million to £1 million – depriving Labour of £600 million which it had earmarked to pay for cuts in university tuition fees.
Mr Balls insisted that the fees policy would nonetheless go ahead unchanged and would be fully funded in Labour’s manifesto.
Delivering his statement to the House of Commons just hours after official figures showed joblessness falling to levels last seen in 2008 and employment rising to a record high of almost 30.1 million, Mr Osborne said that Britain was the fastest growing advanced economy in the world, with living standards now higher than they were in 2010.
“The hard work and sacrifice of the British people has paid off. The original debt target I set out in my first Budget has been met,” said the Chancellor.
“We will end this parliament with Britain’s national debt share falling. The sun is starting to shine – and we are fixing the roof.”
But Ed Miliband condemned the Chancellor for failing to mention investment in the NHS and public services and said there had never been such a large gap between Mr Osborne’s rhetoric and the reality of people’s lives.
“This is a Budget people won’t believe from a Government that is not on their side – because of their record, because of their instinct, because of their plans for the future,” said the Labour leader.
The Budget programme was signed off by both Conservative and Liberal Democrat sides of the coalition government. But Lib Dems clearly signalled that the period of co-operation within government was coming to an end by announcing that on Thursday they will set out their own trajectory for future tax and spending – featuring a significantly higher reliance on tax rises than envisaged by the Tories.
Mr Osborne said the OBR had ticked up its growth forecast for this year – to 2.5 per cent compared to the 2.4 per cent it was predicting at the time of the Autumn Statement in December. Growth will also be slightly higher next year at 2.3 per cent as against a previous forecast of 2.2 per cent, he said.
Debt as a share of GDP was forecast to fall from 80.4 per cent in 2014-15 to 71.6 per cent in 2019-20.
Mr Osborne told MPs: “Today, I report on a Britain that is growing, creating jobs and paying its way. We took difficult decisions in the teeth of opposition and it worked – Britain is walking tall again.
“Five years ago, millions of people could not find work. Today, I can report: more people have jobs in Britain than ever before.
“Five years ago, living standards were set back years by the Great Recession. Today, the latest projections show that living standards will be higher than when we came to office.
“Five years ago, the deficit was out of control. Today, as a share of national income it is down by more than a half.”
And he added: “The critical choice facing the country now is this: do we return to the chaos of the past? Or do we say to the British people, let’s go on working through the plan that is delivering for you?”
In a further sign of recovery from the 2008 financial crash, Mr Osborne announced a sell-off of £9 billion of the Government’s remaining shares in Lloyds Bank and £13 billion of mortgage assets from the bailouts of Northern Rock and Bradford & Bingley. He also announced a hike in the bank levy to 0.21 per cent.
Together with the new personal savings allowance and Help to Buy Isa, Mr Osborne said the Government was conducting a “savings revolution” with plans to allow pensioners to cash in their annuities and a new “fully flexible Isa” giving savers freedom to withdraw and re-deposit money without losing their tax-free entitlement.