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08 July 2015

Biggest welfare shakeup in a generation

Biggest welfare shakeup in a generation

Today the Chancellor of the Exchequer, George Osborne, unveiled this parliament's first budget and the first from an all-Conservative government in almost two decades.

The Chancellor has said this is a "big budget for a country with big ambitions". He states that this budget is about recognising the hard-working British people.

Prior to the election the Conservatives said that £37 billion in cuts were needed to clear the deficit by 2018. The deficit is the gap between income and spending, or in other words, the country's overdraft. This year the deficit is expected to be 3.7 per cent and 2.2 per cent in 2016/2017.

The deficit will be cut at the same pace as during the last parliament –securing a budget surplus a year later than planned before the election, in 2019-2020. National debt, which is currently about £1.5 trillion and has been increasing year on year, will then start to fall.

As a share of GDP, debt is forecast to fall from 80.3 per cent this year to 68.5 per cent in 2020. Osborne also released the latest growth figures from the Office for Budget Responsibility, with growth in 2015 set to be 2.4 per cent, 2.3 per cent in 2016 and 2.4 per cent in 2017, and so on for the rest of the decade.

The Conservative's determination to get the deficit cleared and public spending under control was linked to the Greece situation by Osborne when he said: "You only have to look at the crisis unfolding in Greece…to realise that if a country's not in control of its borrowing, the borrowing takes control of the country."

A major Conservative election platform was the promise to cut welfare spending by £12 billion. And we've seen them deliver on this promise in today's budget. Osborne has unveiled just under half of the planned £37 billion in cuts with £12 billion from the welfare budget over three years and £5 billion from a crackdown on tax avoidance.

The remainder of the savings will come from cuts to government departments to be announced in the autumn. Yearly borrowing is set to fall from £69.5 billion this to year before hitting a £10 billion surplus in 2019-2020.

The Conservative's reasons for cutting welfare so drastically stem from their belief that welfare spending is not sustainable as well as taking crucial investment away from important areas such as education and infrastructure.

Cuts include changing student grants into loans and scrapping housing benefits for most people under 21, freezing working-age benefits for four years and cutting billions from tax credits and benefit payments.

Believing that the best route out of poverty is work, the Conservatives are determined to see more people in work. They have predicted that one million more jobs will be created by 2020, so given the government's focus it will be crucial that they provide the education and support for people to get these jobs.

This budget sees the biggest change in a generation to the wages of low-paid workers. With the new national living wage, changes to the welfare payments and cuts to tax credits are designed to transform the way the government tops up the low-paid.

In response to the budget, Labour's Harriet Harman admitted that Labour too would have sought welfare cuts. She went on to say they would take these budget proposals seriously, but they would "fiercely oppose policies that hit working people". This budget also introduces a new national living wage for all workers over 25, starting at £7.20 an hour from April 2016 and set to reach £9 by 2020. This will give an estimated 2.5 million people an average £5,000 rise over five years. As expected the inheritance tax will increase to £1 million from 2017. The personal tax allowance will rise to £11,000 next year and the point at which people start paying income tax at 40p will rise from £42,385 to £43,000 next year.

The NHS will receive a further £8 billion by 2020 in addition to the £2 billion already announced.

The government has long said that clamping down on tax dodgers is a priority and we saw work in this area in the previous parliament. Today they announced that £7.2 billion will be raised through clamping down on tax avoidance and evasion.

The government has announced there will be a consultation on relaxing Sunday trading hours. Proponents look to the money that would be brought into the economy, however not all decisions should be purely financially driven. We want to see a society that supports and embraces quality family time as well as ensuring workers get time to rest and relax with family and friends. The government's intent to change the law shows their desire for economic growth overrides all other concerns. The small sacrifice of sometimes not being able to shop is well worth the protection it provides for shop workers.

In response, John Ashcroft of Keep Sunday Special said: "How we live together in our common home is a core issue of national importance and has always been treated as such. Members of Parliament will know that there is no clamor from their constituents to destroy the rhythm of our national life in order to benefit the large storekeepers."

As with our personal household budget, the government has a responsibility to be wise with our public finances. However there is a fine line to tread when it comes to balancing the books and caring for our most vulnerable. 

In this budget we've seen plans for significant spending cuts. And at the end of these cuts are people like you and me. During the recession we saw that the people most impacted were vulnerable people including the disabled, elderly and children. We saw a rise in the use of food banks and encouragingly we saw churches really step up to offer practical support to those in our community. 

The Church and individuals absolutely have a responsibility to care for our families, friends and community. However, there remains a role for government too. It's crucial that the government carefully balance the need to get the books in order with providing that crucial safety net to ensure people don't fall through the cracks.