George Osborne is to sweeten the pill of dramatic welfare curbs with tax cuts as he promises reforms to “secure Britain’s future” in his first Tory-only Budget.
The Chancellor will point to the plight of Greece to justify painful changes, warning that the “greatest mistake” would be to “think that all our problems are solved”.
He is expected to wield the axe on tax credits and housing benefit, reduce the overall benefits cap and announce that student grants are being scrapped.
But Mr Osborne is also set to take advantage of better-than-forecast tax revenues to declare that his £12 billion of welfare savings will be implemented more more slowly than previously thought.
“Our long-term economic plan is working,” Mr Osborne is due to tell MPs. “But the greatest mistake this country could make would be to think al our problems are solved.
“You only have to look at the crisis unfolding in Greece as I speak to realise that if a country’s not in control of its borrowing, the borrowing takes control of the country.”
Mr Osborne will promise to be “bold in transforming education, bold in reforming welfare, bold in delivering infrastructure, bold in building the Northern Powerhouse, bold in backing the aspirations of working people”.
“It is a Budget that sets the way to secure Britain’s future,” he will say.
Mr Osborne had previously indicated that the £12 billion of welfare cuts would be implemented in full by 2017-18 – the year when he has said the Government books will record an absolute surplus.
But he is thought to have “wiggle room” to follow the Organisation for Economic Co-operation and Development’s (OECD) recommendation and shift that date back because tax revenues are about £15 billion higher than projected at the March budget.
Analysts have suggested the Treasury could receive an additional £700 million this year – twice official expectations – thanks to new pension freedoms.
Millions of over-55s have since April been able to cash in their pension pots rather than being forced to buy an annuity.
Freed from the constraints of five years of coalition with the Liberal Democrats, Mr Osborne will use the Commons set-piece to slash the system of tax credits, brought in under the previous Labour government to top up the incomes of low-paid working families.
Prime Minister David Cameron has already signalled that he wants to end the “merry-go-round” of the Government subsiding breadline wages.
Child tax credits are likely to be limited to the first two offspring, saving the Exchequer about £1.4 billion a year, and housing benefit will be abolished for young adults.
Mr Osborne is also going further than previously planned in cutting the £26,000-a-year benefits cap to £23,000 in London and lower in other parts of the country.
Savings of £250 million will be achieved by forcing 340,000 local authority and housing association tenants on incomes of £40,000 or more in London and £30,000 in the rest of England to pay a market, or near market, rent from 2017/18.
The £600 million-plus annual cost of providing free television licences to the over-75s is also being passed to the BBC from 2018/19 – with the broadcaster deciding whether the policy should continue after 2020.
It may in return be able to extend the licence fee to cover people watching via the online iPlayer, and the licence fee is expected to rise in line with the consumer price index (CPI) measure of inflation.
Acknowledging one of the few effective Labour policies from the election campaign, Mr Osborne is expected to herald a new crackdown to extract more tax from “non-doms”
.
One of the more controversial changes could see student grants phased out and replaced with loans in order to save £1.6 billion a year.
But the Budget will also reduce the tax burden in some areas as Mr Osborne lays out the “Conservative way” of helping workers.
There is speculation that some of the Treasury’s cash windfall could be used to make significant progress in raising the personal allowance towards the Tory target of £12,500 by 2020.
And the 40p rate threshold, which the party promised will hit £50,000 by the end of the parliament, will be lifted from the current level of £42,385.
The Budget is also set to include an end to inheritance tax on family homes worth up to £1 million – at an estimated £1 billion cost to the Exchequer – as well as rolling back “green” levies on energy bills.
But Mr Osborne is almost certain to disappoint Tories calling for a cut in the top rate of income tax from 45p to 40p.
Acting Labour leader Harriet Harman said: “When people are working hard they should be able to feel better off for it. What we are looking for in this Budget are measures that will strengthen our economy but not at the expense of people being made worse off.
“The deficit needs to be paid down, but there are better ways of doing it than hitting people that are working hard.
“The Government made promises during the election campaign that we, and the people who voted for them, will be looking to see them deliver on.
“We need the much promised investment in infrastructure to support our fragile economy; that means roads, rail and airports.
“We need skilled workforces equipped for the modern economy. And we need businesses of all sizes to get the help they need to grow and boost their productivity.”
Check back later today for all the energy budget coverage.
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