Summer Budget 2015: A summary

The 2015 Summer Budget was presented by the Chancellor of the Exchequer to Parliament on 8 July 2015. At the same time the Office for Budget Responsibility published its updated forecasts in its Economic and Fiscal Outlook.

This note provides an overview of the main Budget measures (see below), along with analysis of the forecasts, changes to the fiscal rules, changes to welfare, the National Living Wage, and public spending.

• A National Living Wage (NLW) introduced for workers aged 25 and above. A premium will be introduced above the National Minimum Wage leading to the NLW. From April 2016 the NLW will be set at £7.20: at this point the National Minimum Wage will be £6.70, so the premium will be £0.50. The Low Pay Commission will be asked to set out how the NLW will reach over £9, roughly 60% of median earnings, by 2020.

• Over £12 billion of welfare savings will be introduced by 2019/20, a summary of the largest savings are shown in the following section. Changes made to tax credits will see expenditure return to 2007/08 levels in real terms.

• Around £5 billion of savings made by tackling aggressive tax avoidance and evasion by 2019/20.

• Reductions in public services spending have been scaled back. Day-to-day spending on public services, grants and administration to be £83 billion higher over the Parliament than suggested by the Coalition Government’s March 2015 plans.

• The government’s fiscal rules are to be revised to include a target for a budget surplus by 2019/20 and for all subsequent years when in ‘normal times’. The economy will be viewed as being in ‘normal times’ if real annual growth is above 1%.

• Tax-free personal allowance increased from £10,600 in 2015/16 to £11,000 in 2016/17 and £11,200 in 21017/18; higher rate threshold increased from £42,385 in 2015/16 to £43,000 in 2016/17 and £43,600 in 2017/18.

• A transferable main residence allowance of £175,000 for Inheritance Tax will be phased in by 2020/21. This will increase the effective Inheritance Tax threshold for married couples and civil partners to £1 million.

• Pensions tax relief for those with gross incomes over £150,000 will be restricted from 2016/17. The current annual allowance of £40,000 will be reduced to £10,000 once an individual’s income reaches £210,000. There will be a wider consultation on reforming tax relief on pensions.

• Corporation tax reduced from the current level of 20% to 19% from 1 April 2017 and 18% from 1 April 2020.

• The bank levy will be reduced annually from the current level of 0.21% until reaching 0.1% in 2021. A supplementary tax on banking sector profit of 8% will be introduced from 1 January 2016.

• Dividend Tax Credit to be replaced with a new tax-free Dividend Allowance of £5,000 a year from April 2016. New tax rates for dividends income introduced.

• Insurance premium tax increased from 6% to 9.5% from 1 November 2015.

• A new vehicle excise duty (VED) banding system introduced for cars registered on or after 1 April 2017. From 2020/21 income from VED in England will contributed to the costs of the Strategic Road Network.

• Non-domiciled status will, from April 2017, be removed for anybody who has been resident in the UK for more than 15 of the previous 20 years.

• From April 2016 the Employment Allowance, which gives a National Insurance contributions free allowance to businesses, will be extended from £2,000 to £3,000.

• Following further discussions with businesses, a levy on large UK employers to fund 3 million new apprenticeships will be introduced.

• Social housing rents to be reduced by 1% a year for 4 years from 2016. Tenants with household incomes of £40,000 and above in London, and £30,000 in the rest of England, will be required to at least pay a near market rent to stay in their social rented accommodation.

• Annual Investment Allowance, a capital tax allowance, set at £200,000 from January 2016 – the January 2016 level was set to be £25,000.

• The relief on finance costs that landlords of residential property can get will be restricted to the basic rate of income tax. The restriction will be phased in over 4 years, starting from April 2017.

• From 2016/17 student maintenance grants will be replaced with maintenance loans for new students in England. The loans will be paid back once earnings exceed £21,000 a year. The loans will be worth up to £8,200 a year.

• The government has committed to meeting the NATO pledge to spend 2% of national income on defence every year of this decade.

• The government has committed to funding the NHS’ ‘Five Year Forward View’ which called for £8 billion by 2020/21.

• The government will provide funding for public sector pay increases of 1% for 4 years from 2016/17.

• The exemption for renewable source electricity from the Climate Change Levy will be removed from 1 August 2015

The below excel provides constituency data for welfare measures.