George Osborne hiked VAT to 20 per cent today in a Budget of eye-watering tax rises and savage 25 per cent spending cuts.
In his bid to repair the nation’s finances, the Chancellor also slapped a two-year pay freeze on millions in the public sector, froze the weekly £20.30 child benefit for three years and raised capital gains tax for better-off savers.
Launching a war on ballooning welfare bills, he hacked back entitlements to housing benefit which he said currently gobble up more than policing and universities combined.
Every claimant of disability living allowance will have to undergo medical tests to ensure they are genuinely incapable of working. In addition, tax credits will be withdrawn from the middle classes.
Mr Osborne warned a stunned House of Commons that this is only the start. He announced spending cuts totalling £61 billion over the five-year parliament, revealing that every Whitehall department will face cuts of a staggering 25 per cent in their budgets in the autumn comprehensive spending review — to be announced on October 20 — unless even deeper welfare savings can be found first.
The prize he outlined was a massive reduction in the £155 billion deficit, down to just £20 billion by 2015-16.
Over the five-year parliament, borrowing will be an astonishing £126 billion lower than planned under Labour, saving £3 billion a year in debt interest. Growth is markedly down on the rosy projections issued by Labour in March, but the new independent forecaster, the OBR, predicted it would not be harmed in the longer run.
Mr Osborne called it the “unavoidable Budget”, arguing that failure to stop spending outstripping national earnings would bring about a Greek-style crisis. Speaking to the Evening Standard as he left No 11 to brief the Cabinet, the Chancellor said: “My budget is tough but it will be fair. Action is unavoidable because of the mess we have to clear up. So the Coalition Government will take responsibility for balancing Britain’s books within five years.”
He confirmed an income tax break for the poor, with more money for poorer children and a restoration of the pensions link with earnings from April next year — a link broken by Margaret Thatcher nearly 30 years ago.
“The richest paying the most and the vulnerable protected. That is our approach,” he told the Commons. “Prosperity for all. That is our goal.”
He also declared: “Everyone will pay something,” revealing the Queen has agreed to have the Civil List frozen so that the royal finances will endure the same squeeze as public sector workers like teachers and council officials.
But there was furious Labour heckling when he announced the most brutal tax rise in about £8 billion of extra taxation — the rise in VAT.
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