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Budget 2015: Osborne offers country 'new contract' Budget 2015: Osborne offers country 'new contract'
(about 2 hours later)
George Osborne has rejected criticism of his Budget insisting it offers the country a "new contract". Chancellor George Osborne has rejected criticism of his Budget insisting it offers the country a "new contract".
He said businesses will have to pay higher wages but get lower taxes in return - and workers will get higher pay but fewer benefits. He said businesses will have to pay higher wages but will pay lower taxes in return - while workers will get higher pay but fewer benefits.
This created a "new centre" in British politics and a "fair deal" for taxpayers and those on welfare. This created a "new centre" in British politics and was a "fair deal" for all, he told BBC Radio 4's Today programme.
Labour has attacked the Budget for being too hard on the poor and called the National Living Wage a "con".Labour has attacked the Budget for being too hard on the poor and called the National Living Wage a "con".
Mr Osborne unveiled the Living Wage in a surprise announcement at the end of his Budget speech. Paid to over-25s, it will start at £7.20 and rise to £9 an hour by 2020. Mr Osborne unveiled the National Living Wage in a surprise announcement at the end of his Budget speech on Wednesday. Paid to over-25s, it will start at £7.20 and rise to £9 an hour by 2020.
He hit back at criticism from some businesses, who say they will not be able to afford to pay the new rate. But the £4.5bn cut to tax credits, part of a £12bn package of welfare cuts announced on Wednesday, will kick in next April, leading Labour to accuse Mr Osborne of "pulling the rug from under" many poor families.
'Free ride''Free ride'
The chancellor told BBC Radio 4's Today programme there were some "really great British companies" but others that "frankly have taken a free ride" by not training their own workforce and using the training that others have provided. Tax credits were introduced in 2003 by Gordon Brown to top-up the wages of low paid workers but Mr Osborne said their cost had ballooned to an unsustainable £30bn a year and he wanted to make businesses give their workers a pay rise instead. He will also make firms fund more apprenticeships through a new levy.
The chancellor said there were some "really great British companies" but others that "frankly have taken a free ride" by not training their own workforce and using the training that others have provided.
He said Britain has a "welfare system that is unsustainable" and that we "can't have a welfare system that just grows and grows and grows".He said Britain has a "welfare system that is unsustainable" and that we "can't have a welfare system that just grows and grows and grows".
He said his aim was to create a welfare system that was "fair to those who need it and fair to those who pay for it".He said his aim was to create a welfare system that was "fair to those who need it and fair to those who pay for it".
BBC political editor Nick Robinson said the living wage pledge, as well as announcements on apprenticeships and the taxation of so-called non-doms, represented "a ruthless raid on Labour's manifesto". The living wage will give a pay rise to six million workers but is expected to cost 60,000 jobs, according to the Office for Budget Responsibility.
Mr Osborne made the surprise announcement about the living wage at the end of his speech, saying that workers aged over 25 would be entitled to it from next April, to soften the impact of in-work benefit cuts. But Mr Osborne said other measures in his Budget would help create a million more jobs.
The current minimum wage, which applies to those aged over 21, is £6.50. Those entitled to the "living wage" will get £7.20 and that will rise to £9 an hour by 2020. Labour had vowed to increase the minimum wage to £8 by 2020 during the general election campaign. Analysis by Political Editor Nick Robinson
As the Commons begins to debate the content of the Budget, influential think tank the Institute for Fiscal Studies will give its verdict. George Osborne's stated aim was to create what he called a "new settlement". That's politician's code for re-writing the rules of politics to suit your side.
Mr Osborne also scrapped student grants and froze working-age benefits but increased the overall tax take to slow the pace of welfare cuts. So it is that he did something rather surprising - slowing and softening spending and welfare cuts now having promised faster and deeper cuts in the run up to the election.
Other measures included: More from Nick
Mr Osborne unveiled a downgraded growth forecast for the UK this year, of 2.4%, and pushed back the date at which the UK's public finances would move into surplus by a year to 2019/20. Robert Peston's full analysis
The Office for Budget Responsibility said public spending would be £83bn higher over the next five years than Mr Osborne said in his March Budget - and the £24.6bn tax cuts announced in the Budget would be dwarfed by £47.2bn in tax rises, including the car tax changes and increasing the tax on insurance premiums from November. Budget reaction in quotes
Welfare cuts would add up to £35bn over the next five years. "What I'm offering is a new contract with the country," Mr Osborne told Today.
Analysis by Economics Editor Robert Peston "What we're saying to business is pay higher wages but you get lower taxes, what we're saying to people is you get a bigger pay cheque but there will be a less generous benefits system.
So it turns out George Osborne did not need Lib Dems in government to tell him to take off his hair shirt. "What we're saying to the country is we're going to spend less but we're going to live within our means. And that is the new settlement, I think it's the new centre of British politics."
Because today's Budget is massively less austere than the one forged with them in March, just before the election. Working tax credits, which top up the wages of four million low paid workers, will be squeezed by £4.5bn, with about half a million people losing them altogether.
Read Robert's full analysis Shadow Chancellor Chris Leslie said: "Don't underestimate how important those tax credits have been for many, many people who will be waking up this morning and, I think, left reeling by the massive reduction to their quality of life that will come because of the nature of this set of decisions."
Nick Robinson: Osborne's 'big' Budget Other Budget measures included:
Iain Watson's analysis: Stealing Labour's clothes The Treasury confirmed the living wage would apply to both the public and private sectors.
Reaction in quotes
Harman: Families will still suffer
The introduction of the living wage is expected to boost the wages of six million people but may cause firms to recruit more under-25s, who will be on a lower rate, according to the Office for Budget Responsibility.
The Treasury confirmed the measure would apply to both the public and private sectors.
The Local Government Association said it welcomed the move, but warned it would add a "potential upward pressure" to council budgets and said it expected local authorities to be compensated.The Local Government Association said it welcomed the move, but warned it would add a "potential upward pressure" to council budgets and said it expected local authorities to be compensated.
Ms Kendall attacked the policy on Twitter, saying it lagged behind the amount promoted by the Living Wage Foundation. Labour leadership contender Yvette Cooper, who claimed women would be hit harder than men by the measures in the Budget, said the new rate should "certainly not" be called a living wage.
Ms Cooper, who claimed women would be hit harder than men by the measures in the Budget, said the new rate should "certainly not" be called a living wage.
Shadow health secretary Andy Burnham - who is also bidding to become Labour leader - said he would have paid the rate to all workers, accusing the government of "age discrimination in pay".Shadow health secretary Andy Burnham - who is also bidding to become Labour leader - said he would have paid the rate to all workers, accusing the government of "age discrimination in pay".
Business groups gave a mixed reaction to the national living wage pledge, with the Institute of Directors saying it was "time for companies to increase pay" but the CBI saying the government was taking "a big gamble" on wage increases that industry might not be able to deliver. Labour leadership contender Liz Kendall said the National Living Wage was a "con", while the fourth MP vying for the job, Jeremy Corbyn, said it was the "same narrative of cutting taxation for the very richest, making life worse for the very poorest and selling off state assets to pay for it" the Tories had pursued 20 years ago.
Business groups gave a mixed reaction to the National Living Wage pledge, with the Institute of Directors saying it was "time for companies to increase pay" but the CBI said the government was taking "a big gamble" on wage increases that industry might not be able to deliver.
The Living Wage Foundation director Rhys Moore said the proposed £9 rate was a "massive victory" for campaigners, but that it was "effectively a higher national minimum wage and not a living wage", due to the different ways the two rates are calculated.The Living Wage Foundation director Rhys Moore said the proposed £9 rate was a "massive victory" for campaigners, but that it was "effectively a higher national minimum wage and not a living wage", due to the different ways the two rates are calculated.
The TUC welcomed the announcement but said Mr Osborne was "giving with one hand taking with the other" and "massive cuts in support for working people will hit families with children hardest".The TUC welcomed the announcement but said Mr Osborne was "giving with one hand taking with the other" and "massive cuts in support for working people will hit families with children hardest".
Mr Osborne announced that the £26,000 benefit cap - the amount one household can claim in a year - would be cut to £23,000 in London and £20,000 in the rest of the country.
The government will also make local authority and housing association tenants in England who earn more than £30,000 - or £40,000 in London - pay up to the market rent, but rents in the social housing sector will be reduced by 1% a year for the next four years.
The chancellor unveiled "just under half" of the £37bn in cuts he says are needed to clear the deficit, with the remainder to come from cuts to government departments to be announced in the autumn.
The chancellor announced an estimated £4.5bn cut to the £30bn-a-year tax credits system, which tops up the wages of low-paid workers, significantly reducing the amount someone can earn before they start losing benefit money.
Support for children through tax credits and universal credits will also be limited to two children, affecting children born after April 2017 unless the third child is the result of twins, triplets or other multiple birth.
Among Budget reaction, UKIP MP Douglas Carswell said it might become "politically unsustainable" to keep public sector pay rises frozen at 1% for four years if the economy grew.
But he welcomed cuts to tax credits, saying "we've got to unravel the disastrous system that Gordon Brown created" where public money subsidises big firms paying low wages.
The BBC's assistant political editor Norman Smith says Labour will oppose the government's curbs to tax credits.
They have condemned the changes as a "work penalty" that will deter people from getting jobs.
But Labour will not oppose some of the other benefit changes unveiled in the budget, our correspondent added.
Shadow Chancellor Chris Leslie told the Today programme the chancellor was not bringing in wage increases in time for the "pulling of the rug from underneath hundreds of thousands of working people" through tax credits cuts.
He added: "Don't underestimate how important those tax credits have been for many, many people who will be waking up this morning and, I think, left reeling by the massive reduction to their quality of life that will come because of the nature of this set of decisions."
The SNP's economy spokesman and deputy leader, Stewart Hosie, said the Budget would hit the "the poorest and the most vulnerable" and do nothing to improve productivity or encourage innovation.
A Lib Dem spokesman said: "Amongst the gimmicks and giveaways, the chancellor has hidden four more years of pain, austerity, and cuts."
How will you be affected by the chancellor's summer budget? Email haveyoursay@bbc.co.uk with your story.How will you be affected by the chancellor's summer budget? Email haveyoursay@bbc.co.uk with your story.
Please include a contact number if you are willing to speak to a BBC journalist.Please include a contact number if you are willing to speak to a BBC journalist.