The first Budget after a general election is traditionally the time for introducing unpopular measures. The Chancellor is not constrained by a coalition partner and has nearly five years until the next election. Mr Osborne’s stated aim is to move the UK from a low wage, high tax, high welfare economy to a higher wage, lower tax and lower welfare economy.
Following the pattern of recent years, some of the Chancellor’s announcements were well trailed beforehand. For example, the quantum of the benefits cuts (£12bn) and their targets (working age claimants) were well known. What came as something of a surprise was that the pain was spread over a three-year period rather than the expected two.
The inheritance tax main residence allowance was well broadcast – the Chancellor even wrote about it in The Times at the weekend – but the allowance turned out to be less generous than the leaks suggested. There was unexpected news for wealthier individuals with the introduction of higher rates of tax on dividends from next April alongside a new dividend tax allowance. The consultation on possible radical reform of pension tax relief could herald further major changes.
The government will legislate to set a ceiling for the main rates of income tax, the rates of VAT and employer and employee NIC rates so that they cannot rise above their 2015/16 levels.