LONDON (Reuters) - Chancellor George Osborne said he would reshape the world’s fifth-largest economy by chopping welfare but also announced a new national minimum wage in a budget that reflects an unexpectedly decisive election victory.
In the first solely Conservative budget for nearly 20 years, Osborne, a leading contender to succeed Prime Minister David Cameron, pointed on Wednesday to the turmoil in Greece as he renewed his push to fix Britain’s public finances.
However Osborne also announced that it would now take four years, not three, to achieve his aim of turning Britain’s hefty budget deficit into surplus.
“Britain still spends too much, borrows too much,” Osborne told parliament.
“You only have to look at the crisis unfolding in Greece as I speak, to realise that if a country’s not in control of its borrowing, the borrowing takes control of the country.”
Seeking to counter the impact of his plan to save 12 billion pounds ($18 billion) in annual welfare spending, equivalent to about 11 percent of the non-pension welfare budget, Osborne announced a new higher minimum wage for those aged 25 or over.
To cheers from Conservative lawmakers, Osborne said the government would continue to raise the amount of earnings that are exempt from income tax as well as increasing the thresholds for the 40 percent income tax rate and for inheritance tax on family homes to the 1 million-pound mark.
Osborne also pledged to cut corporation tax to 19 percent in 2017 and 18 percent by 2020 from 20 percent currently.
Shares in leading banks rose as he announced he would scale back a levy on bank assets that had prompted HSBC to consider leaving Britain. Instead, banks will pay a new surcharge on profit.
And in a nod to concerns in Washington that Britain’s austerity squeeze could diminish its role on the global stage, he pledged to maintain defence spending at the NATO target level.
The interim leader of the opposition Labour Party, Harriet Harman, derided what she said were Osborne’s hopes of eventually succeeding Cameron.
“The hopes of millions of working people are more important,” Harman said. “Even with the higher national living wage that he’s announced, it will not be enough for a family to live on because of the tough cuts in tax credit.”
Osborne originally promised to largely eliminate Britain’s budget deficit within five years when he became finance minister in 2010. Instead the deficit has only been halved to stand at nearly 5 percent of economic output in the 12 months to March, still one of the biggest among rich economies.
Osborne said on Wednesday he was pushing the target of a budget surplus into the 2019/20 financial year from the 2018/19 deadline projected in his previous budget plan announced a few weeks before the Conservatives’ election victory in May.
Free of having to seek agreement with the Conservatives’ former Liberal Democrat coalition partners, Osborne said he would tackle Britain’s hefty bill for tax rebates to low-paid workers by freezing working-age benefits for four years and lowering the income threshold for receiving tax credits.
An overall cap on benefits per household would be lowered sharply and workers on higher salaries would have to pay more in rent for public housing.
“The benefits system should not support lifestyles and rents that are not available to the taxpayers who pay for that system,” he said.
Osborne is hoping a recovery in earnings from the effects of the financial crisis will continue in the coming years.
And the new, compulsory National Living Wage will raise the effective minimum wage by over 13 percent by 2020 for people aged 25 and above, Britain’s budget forecasting office said.
As for the wealthy, Osborne said he would abolish special tax status for residents from abroad who live in Britain for long periods of time, and the remaining “non doms” would have to pay the same taxes on property as everyone else.
The changes, coupled with cuts to the tax relief paid by wealthy landlords on mortgages, hit shares of London-listed estate agents and property companies.
Additional reporting by William James, Kylie MacLellan, Kate Holton, Sarah Young, Paul Sandle, Estelle Shirbon, Lucy Mortlock and the UK bureau; writing by Guy Faulconbridge and William Schomberg; Editing by Ruth Pitchford