Budget hits the poor and the young

9 July 2015, 21:59   By Samantha Smith

A NATIONAL Living Wage will come into effect from April 2016, starting at £7.20 an hour and rising to £9.00 an hour by 2020.

government downing street uk
Credit: Pres Panayotov/Shutterstock.com

That's the headline grabber from the Government's Budget - but it comes alongside cuts to tax credits and benefits, and the scrapping of student grants.

George Osborne confirmed that the benefit cap would be reduced - to £23,000 a year for families in London, and £20,000 a year for people living elsewhere in the UK.

But the personal tax allowance will increase to £11,000 from next April, and the inheritance tax threshold for families with two parents will increase to £1 million in 2017.

Higher pay?

The National Living Wage will be introduced in April 2016. It'll be compulsory to pay workers aged 25 or more a minimum of £7.20 an hour, rising to £9 an hour by 2020.

That's a national rate - there's no weighting to reflect the extra cost of living and working in London, for example.

It's also less than the suggested Living Wage of £9.15 an hour in London and £7.85 everywhere else.

People younger than 25 will still have to make do with the existing national minimum wage: currently £6.50 an hour for over-21s, and £5.13 for 18 to 20-year-olds.

Apprentices, meanwhile, will see their wages rise by 20% to £3.30 an hour.

The idea of the National Living Wage was welcomed by campaigners - but many sounded a strong note of caution.

Julia Unwin, Chief Executive of the Joseph Rowntree Foundation said it was "an important and welcome recognition that the minimum wage falls well short of achieving an adequate standard of living".

The Child Poverty Action Group's Alison Garnham spoke volumes when she called it "a higher minimum wage", and said it was unlikely to help many of those supposedly meant to benefit:

"Families which appear to gain under this proposal may end up worse off overall if cuts to child benefit, child tax credits and working tax credits go ahead."

Tax credits

Tax credits, like most working age benefits excluding maternity pay and disability benefits, will be frozen for four years.

They're also going to be limited to only the poorest families, with the income threshold being reduced from £6,420 to £3,850, and the disregard for fluctuations in income being reduced from £5,000 to £2,500.

Fiona Weir, chief executive of Gingerbread, a charity for single parents, said it "will likely act as real disincentive for people wanting to increase their working hours or income.

"Most single parents already work... what they need is better support to help them get a job with decent pay and hours."

Meanwhile child tax credits, worth £2,780 a year per child, will be limited to the first two children for new claimants from April 2017.

The change will also apply to those applying for Universal Credit for the first time - but Child Benefit isn't affected.

The Labour Party and campaign groups have pointed out that far from being an incentive to work, changes to tax credits could have the opposite effect.

Shadow chancellor Chris Leslie used the example of a couple with two children, where one parent is earning the average full-time wage.

He claims that family will be £2,000 worse off as a result of the changes to tax credits - and that for every extra pound they gain from the higher wage, they'll lose £2 in tax credits.

Speaking about the fact that two thirds of poor children are in working families, Alison Garnham said it was "incredible" that the Government was cutting a measure "targeted to help them".

Other benefits and housing

At the same time, the benefits cap will be reduced as previously suggested - but only families and single parents in London will be able to claim up to £23,000 a year.

Outside the capital, there'll be a maximum limit of £20,000 for those on benefits.

The Treasury estimates that the cap will affect around 89,000 households, and will save almost £1.7 billion over the next five years.

Charities have already expressed concern about how this will affect the ability of some of the most vulnerable households to meet basic costs such as housing, or to find work.

Mr Osborne did say that rent prices in the social housing sector will be reduced by 1% per year for the next four years.

But people earning more than £30,000, or £40,000 in London, and living in local authority and housing association properties in England will have to pay market rates for their rent.

That'll add an average of £70 a week onto rent bills.

Don't be young

Young people will also find it more difficult to set out on their own, with housing benefit for 18-21-year-olds being scrapped.

Instead they'll be subject to the "Youth Obligation scheme", the basics of which mean everyone in this age group should either be in education or work.

The Government say there'll be exceptions for those who are vulnerable or in difficult situations, but only those with disabilities who receive benefits will be automatically entitled to claim housing benefit, and they won't be means tested.

Those going down the education route could find it tougher too, as maintenance grants for new students will be scrapped starting from 2016/17.

Students whose families have an annual income of less than £42,620 have been eligible for at least some help with costs; those from families whose annual income is less than £25,000 qualify for the maximum grant of £3,387 a year.

From 2016, new students will instead rely on a refreshed loan system.

They'll be able to borrow up to £8,200 a year, and won't be asked to pay anything back until they're earning more than £21,000 a year.

Death and taxes

The Government have previously said they would increase the personal tax allowance to £12,500 by the end of this Parliament - and they've announced a step towards that by increasing it to £11,000 from next April.

The higher tax rate threshold will also rise, from £42,385 to £43,000.

Meanwhile, the inheritance tax threshold for family homes will be increased to £1 million in April 2017.

As we explain further here, legally recognised couples - be they married or in a civil partnership - can pass their inheritance tax allowance on to each other.

From April 2017, parents will be entitled to an extra £175,000 "family home allowance" on top of the standard £325,000 allowance, enabling each parent to pass on assets of up to £500,000 before tax is levied.

That will bring the total transferable tax-free allowance from both parents in a married couple or civil partnership to £1 million.


Fuel duty has been frozen for the rest of this year, but Vehicle Excise Duty (VED) is being updated again.

Cars produced before 2017 will be taxed as they are now, but from April of that year new cars will be classified as either zero, standard or premium.

The Chancellor says 95% of all new cars will come under the "standard" category, and therefore be subject to annual vehicle excise duty of £140.

That's less than the average paid at the moment, which is around £165.

But people buying new cars will have to pay a different rate in the year following the car's registration - ranging from nothing for zero emission cars, up to £2,000 for the most polluting of the "standard rate" models.

More expensive cars will also cost more for the first five years of their lives, with those costing £40,000 or more subject to a £310 supplement.

At least garage bills might be a little lower: new cars won't need to have an MOT test for four years, up from three at present.

And finally, from 2020, the common name for VED will actually be accurate again, as the money raised from taxation of vehicles will go into a special Roads Fund.

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