Liberal Democrat HQ has provided the following briefing on yesterday’s budget. It was a complex set of proposals, some of which will be welcome and familiar to members of the Liberal Democrats and the Labour Party.
These are the Party’s early reactions to the key announcements:
LIVING WAGE
There’s no doubt this is a big move from the Chancellor which will make a positive impact on low paid workers. But his rhetoric masks the reality, and his smoke and mirrors performance hides the true face of what’s happening for the poorest and most vulnerable people in Britain.
All is not what it seems.
The Chancellor’s big offer is that his living wage will be set at £7.20 next year – already 65p an hour lower than the official Living Wage. And in London, the Living Wage is already set at £9.15 this year – a figure the Chancellor won’t reach for another five years.
Also, the official Living Wage is calculated to include available tax credits and in-work benefits – the very benefits Osborne is taking away. The Resolution Foundation calculate that the impact of Osborne’s cuts to tax credits mean the living wage in London today would need to be more than £11.00 to compensate.
YOUNG PEOPLE
Young people are particularly hit in this budget. In three big measures today, young people from poorer backgrounds will be finding life tougher.
Housing benefit has been taken away, the Chancellor’s living wage doesn’t apply, and student grants have been axed. If you’re looking to get ahead, and make a start in life, this Tory budget hits young people hard.
18-21 year olds will no longer be able to claim housing benefit from April 2017, affecting around 20,000 young people. Liberal Democrats vetoed these proposals the last time the Tories brought this up, ahead of the Autumn Statement in 2012.
Under the Chancellor’s wage plan, under 25s working a 30 hour week will earn £780 a year less than an over-25 doing the same job.
And living expenses grants for poorer students will be axed. This is a direct attack on the poorest families, adding a barrier to young people going to University.
Latest figures show that over 600,000 students are in receipt of a living expenses grant.
Sir Peter Lampl, Chairman of the Sutton Trust and of the Education Endowment Foundation has warned that the move could put off low income students going to university. He said: “Since grants were reintroduced, there have been significant improvements in participation from full time less advantaged students, and this will be put a risk by today’s Budget plans.”
PUBLIC SECTOR PAY
Osborne’s desire to attack the public sector continues, with four more years of pay restraint.
After five years of pay restraint, teachers, nurses, police officers and all those who work in the public sector should no longer face any more. It’s time to offer some light at the end of the tunnel.
In the Autumn Statement in 2012, Osborne wanted to force through three years of pay freezes, but Liberal Democrats negotiated a 1% rise. In the election, we committed to real terms increases in public sector pay.
Now Osborne is punishing them for dedication with four more years of pain.
A police officer on £25,000 faces a real terms cut of £600.
The Chancellor declared in his Budget that “Britain deserves a pay-rise” – clearly there will be little or no pay-rise for millions of hard-working nurses, policemen and civil servants.
John Hawksworth, chief economist at PwC has warned that restricting public sector pay growth to 1% per annum for the next four years will make it harder to attract and retain talented individuals in the public sector: “Restricting public pay growth to 1% per annum for the next four years will pose challenges for the public sector in attracting and retaining talent over a period when private sector earnings are expected to grow by 3-4% per annum. ”
ENVIRONMENT
Hidden in the Red Book, the Tories show their true commitment to the Environment – by axing plans to raise more money from polluters. In just a one line mention the Chancellor confirmed that they no longer want to increase the proportion of revenue from environmental taxes to this Parliament.
The Chancellor also announced plans to cut the Climate Change Levy which was set up to encourage investment in renewable energy.
The Liberal Democrats in Government more than doubled investment in renewable energy. This move will hit the renewables sector and make it harder for the UK to effectively tackle climate change.
ESA
True to form, Osborne is taking an axe to welfare, and is hitting those who need the most help.
Employment Support Allowance is paid to people with disabilities, sickness or mental health problems who are looking for work. Around 2 million people in the UK receive the Employment and Support Allowance in some form.
Conservative plans mean that new claimants with conditions like depression, schizophrenia and bi polar will get with £30 a week less than they do at the moment, a third of their weekly support. £30 that is designed to help them get well and get extra support in getting back into the workplace.
Liberal Democrats firmly reject these cuts to ESA, which we believe are seriously misguided. These reforms provide further evidence that the Tories cannot be trusted to govern fairly on their own. Liberal Democrats, in contrast to the Tories, recognise the valuable additional support that ESA provides.
CHILD TAX CREDIT and FAMILY TAX CREDIT
The Liberal Democrats blocked these proposals in government, and do not support these changes now.
Currently, around 870,000 families who claim tax credit have three or more children – roughly one in five of the total number.
According to the Office of Budget Responsibility, a two parent household earning £16,000 with one child could see a cut of more than £2,000. If they have an income of £21,000 they’ll see a reduction of more than £2,500.
The Social Mobility and Child Poverty Commission says that any cuts to Tax Credits will cut the incomes of 45% of working families. 72% of those people hit earn less than £20,000 a year, and only 7% of them have earnings of more than £30,000 a year.
They also say changes would have a disproportionate effect around the country. Barnardo’s Scotland estimates 49.1% of families in Scotland currently use tax credits.
Ethnic minority families are likely to be disproportionately affected. Recent government data shows that while tax credits constitute 2% of weekly household income for white households, this rises to 6% for black households and 10% for households of Pakistani or Bangladeshi origin.
THE BENEFIT CAP
The Liberal Democrats backed the £26,000 cap in Coalition, but this goes too far. Our manifesto made clear that the cap should continue to be set at around the average family income. Liberal Democrats do not support the lowering of the cap. This is an ideological step based on politics not on economics.
By introducing a new set of regional benefits, the Tories are opening the door to regional pay. Something they planned before the election, and something the Liberal Democrats fiercely oppose.
The IFS stated: “Reducing the benefits cap from £26,000 to £23,000 per year would hit some families with several children and/or high rents hard: the biggest losers would be about 24,000 families who are already capped and who would lose another £3,000 (up to 11.5% of their income)”.
Analysis by Moat Housing in January 2015 estimated that even reducing the cap to £23,000 would make every three bedroom social home in the South East of England instantly unaffordable, with two-bedroom homes becoming unaffordable within six years.
INHERITANCE TAX
Just 6% of the richest estates in the country currently pay Inheritance Tax. Helping the richest families in the country should not be a priority at this stage.
Lib Dems blocked changes to inheritance tax in Coalition because we believed it would help only the richest families. Now, true to form, the Tories sketch out their first budget plan to offer this prime tax break to the wealthiest.