George Osborne is Chancellor of the Exchequer and MP for Tatton.
This week, we’re demonstrating what a modern, compassionate, majority Conservative government is all about.
Over the next seven days, we’re taking transformative steps to support decent, hardworking people and the businesses that they work for and run.
For me, these reforms – including the new, compulsory National Living Wage, which came into effect at midnight – demonstrate exactly who and what we’re fighting for. As I said in the Commons last week, the long-term economic plan has never been about numbers on some Treasury spreadsheet as far as I’m concerned. It’s about real people’s livelihoods, jobs, dreams and aspirations. They’re what we’re entrusted with, and they’re what weighs on every decision I’ve taken as Chancellor over the last six years.
As Conservatives, we know you can’t deliver social justice without economic security. So these latest changes we’re making will help to deliver that – making a real difference to millions of people in terms of their family and business finances straight away. But I believe their impact will be felt much further into the future too. Many will see a significant pay rise, keeping more of what they earn, and more dignity when they retire. For businesses, which have already created over 2.8 million jobs since 2010, there will be lower taxes, more help to create jobs, and a better-skilled population to fill them.
It’s all part of a long-term plan for a country which finally lives within its means and puts economic security first.
These changes will deliver exactly what we all promised at last year’s general election. They should make us more productive, helping to turn around one of the historic weaknesses in the British economy. They will help guarantee security for the next generation. And they will move us from a low wage, high tax, and high welfare economy to a high wage, low tax, and low welfare one.
We’ve already achieved a great deal to be proud of. We have the fastest growing major economy in the world, more people in work than ever before, and a deficit that is a third of the ruinous level we inherited from the last government.
But our party knows there is much more to do. More to do to deliver economic and national security. And more to do to make sure that everyone in the country – whether an apprentice learning a craft, a teacher or a nurse, a solicitor or an entrepreneur – feels the full benefit.
A centrepiece of our plan is today’s new National Living Wage. It’s a radical new policy that means that from today, 1.3 million of the lowest-paid in our society are earning more for every hour they work than they did just yesterday.
It means British workers aged 25 and over on the minimum wage are getting a bigger increase in their annual pay than any of their counterparts in the world. In fact, it’s the biggest such rise in any advanced economy since the financial crisis seven years ago.
The National Living Wage will increase every year, and is forecast to reach £9 an hour by 2020. Our analysis shows that women, in particular, will benefit – meaning significant progress in closing the gender pay gap for the lowest paid. It’s not just those on the minimum wage that will benefit. Experts predict a ripple effect up the income scale, meaning that in total as many as six million will benefit.
Of all the things I’ve introduced as Chancellor, the National Living Wage is perhaps the one I’m proudest of. Let all in our party shout it from the rooftops. It’s a Conservative government taking action on low pay – a Conservative government delivering real social justice.
The second change taking effect is one that ensures people keep more of what they earn. In the last Parliament, we dramatically increased the amount of money a person can earn before paying any income tax, from £6,500 to £10,600. That took almost four million of the lowest paid workers in our country out of tax altogether. And when we went to the British people last May, we said we’d go even further.
So next week, all but the very highest earners in Britain will see their tax bill cut as the personal allowance increases again from £10,600 a year to £11,000. And from next year it’ll rise even further to £11,500 , as I announced in the Budget last month. For a basic rate tax payer that will mean over £1,000 more in their pockets than Labour offered them in 2010. Over 30 million people wil benefit. We also said we recognised the enormous contribution that those on middle incomes make to our economy. Let’s be honest about it: too many families have been pulled into the higher rate of tax.
So next week, the higher rate threshold will also increase, to £43,000. Combined with the changes we’re making to the personal allowance will mean that a typical higher rate taxpayer will pay £818 less this April than they did in April 2010. At the Budget, I promised we’d go even further next year – lifting that threshold to £45,000 in the biggest above inflation cash increase since Nigel Lawson introduced the 40p rate in 1988. Hundreds of thousands of people will be lifted out of higher rate income tax altogether. Keeping more of what you earn – that’s what we Conservatives believe, and what we’re delivering this week.
The third change we make this week is to introduce a more generous system for saving. The new personal savings allowance comes into effect, so that the first £1,000 of interest a basic rate taxpayer earns on their savings becomes completely tax free. To ensure higher rate taxpayers enjoy the same benefit, we have set their allowance at £500. From next week, that benefit will be felt by 92 per cent of Britain’s savers – and 18 million people will now pay no savings tax at all.
I have also announced radical new ISA flexibilities to build on what we achieved under the last parliament, because I’ve always believed that people should be trusted with their own money. So from next Wednesday people will be free to access the money they put into an ISA, up to £15,240 a year, whenever they want – without losing any of their tax free entitlement.
We’re also launching new products to increase choice, just as the new Help to Buy ISA is already helping people buy their first home. From next Wednesday there will be an innovative new finance ISA to support those that want to invest their savings in a company to help it grow. Last month, I used the Budget to announce a landmark new lifetime ISA to help people save for their retirement and first home. From April next year any adult under 40 will be able to save up to £4,000 a year, and receive a 25% bonus from government.
And finally, another change that will benefit millions in the longer term is a radical new state pension. Dignity and security in retirement is at the heart of what this government and we as Conservatives stand for. So from next Wednesday, those reaching pensionable age will receive a new ‘single-tier’ pension. The starting rate for the full new state pension will be £155.65. It will ensure that those of working age can save for their retirement with confidence and a new understanding of exactly what they’ll get from the state when they retire. It is simpler and fairer, with all employees whether in the public or private sector paying the same rate of NICs. Over 70 per cent of people will be receiving an average of £200 a year more than they would have by 2020.
When we first came into government in coalition we set about turning this country around. We’ve achieved a great deal already, and have been backed by the British people to get on with the job as a majority government.
I’m determined – along with David Cameron and all my colleagues – that we do that as progressive, modern Conservatives fighting for everyone in our one nation.