Was The Budget Tough But Fair? Or Just Tough?

Chancellor George Osborne has delivered his first budget for the coalition government. We had been warned to expect a tough budget, although cider drinkers at least will be pleased to see that the planned increase in duty on the popular drink has been scrapped.

No further increases in duty on alcohol, fuel or tobacco were announced this time but the Chancellor indicated that this will be reviewed ahead of the next budget with a particular focus on tackling binge-drinking.

On 4 January 2011, however, the main rate of VAT will rise from 17.5% to 20%. Items which are currently exempt, like food, children’s clothes and papers, will remain so.

Income tax allowances will go up by £1,000 from next April to £7,475 in a move that is expected to remove 880,000 of the lowest-paid in our society from income tax altogether.

Council tax has been frozen for one year.

Stating that the Government had inherited the largest budget deficit of any economy in Europe with the exception of Ireland, the Chancellor announced large cuts in public spending in an attempt to tackle the structural deficit and reduce Britain’s debt mountain.

Spending by all departments except the NHS will fall by 25% over the coming years.

He hopes the measures he announced today will balance the books by 2016.

Changes in the welfare budget are expected to save £11 billion by 2014/15.

Child benefits have been frozen for three years. From next year, tax credits will be reduced for families earning over £40,000, although low-income families will see an increase in Child Tax Credit by £150 above the rate of inflation. Single parents will be expected to look for work when their youngest child goes to school.

Claimants for Disability Living Allowance will have to undergo a medical assessment from 2013.

Housing Benefit will be limited to a maximum of £400 a week. Cuts here should save £1.8 billion a year by the end of this Parliament.

In good news for pensioners, the link with earnings will be restored from April 2011, and a ‘triple-lock’ mechanism has been introduced to protect them: the state pension is guaranteed to rise in line with earnings, prices or by 2.5%, whichever is the greater.

And the state pension and pension credit will escape another measure that will save over £6 billion a year by the end of the Parliament: from 2011, tax credits and benefits will rise in line with the Consumer Price Index instead of the Retail Price Index, which is usually higher. 

There were important measures announced on public sector pay. The lowest-paid public sector workers – those earning under £21,000 per year – will have a £250 flat pay rise for the next two years but other workers will have a pay freeze.  There will be a review of the pay of the highest earning public sector workers and a review of public sector pensions.

The government is hoping the private sector will provide economic growth over the coming years. The Chancellor announced measures such as cutting the small companies’ tax rate to 20% and reducing Corporation Tax by 1% annually until it reaches 24%, where it will stay in a bid to send a signal that Britain is “open for business” again.

The Chancellor called it a “progressive budget” and said that the cuts he had to make were unavoidable and necessary. Do you agree with him that the budget was tough but fair? Or do you think that some of the cuts are too harsh?