Announcing his decision in an article in the Sun, Osborne said he would provide details of how the government plans to eliminate the UK’s budget deficit – forecast to be £75bn this year – and run a surplus by the end of the parliament. “On the 8th of July I am going to take the unusual step of having a second budget of the year – because I don’t want to wait to turn the promises we made in the election into a reality … And I can tell you it will be a budget for working people.”
Treasury sources said the budget would address Britain’s poor productivity record, which has held back growth in living standards, and would also announce plans to create 3m new apprenticeships. However, the centrepiece of the package will be a fresh bout of austerity, with Osborne keen to get unpopular measures out of the way early in the parliament, in readiness for pre-election tax cuts once the public finances have improved.
Provided the economy performs in line with forecasts made by the independent Office for Budget Responsibility, borrowing will be reduced to £41bn in 2016-17 and £14.5bn in 2017-18. By 2018-19, the plan is for the UK to be running a budget surplus of £4bn.
The Conservatives have provided details of how they will find around £1.5bn of savings from the UK’s social security budget and came under pressure from the Institute for Fiscal Studies during the election campaign to explain how they would find the remaining £10.5bn.
The IFS said the scale of the overall savings – 10 per cent of the part of the welfare bill not spent on pensioners – would involve the Conservatives looking at child benefit, child tax credit and disability allowances. According to the Treasury, the budget would announce reforms of welfare that would protect the most vulnerable while making sure the system is fair to taxpayers.
Osborne has previously promised not to raise income tax, national insurance or VAT under a Conservative government, as well as pledging to raise the income tax personal allowance to £12,500 and increase health spending by £8 billion above inflation. The Conservatives have also said they will reduce inheritance tax and will commit to freezing rail fares and TV licence fees.
Osborne will say in the budget that the Conservatives intend to adopt a fair and balanced approach to deficit reduction, and that the package will include ringfencing spending on the NHS while cutting £13bn from other Whitehall departments. The budget will also include a fresh crackdown on tax avoidance designed to raise £5bn.
The timing of the budget in early July will allow the Office for Budget Responsibility to produce new forecasts for the economy and the public finances while giving time for a finance bill to be passed before parliament rises for its summer recess.
With Labour holding a leadership contest following the resignation of Ed Miliband, Osborne will seek to portray his package as a one-nation budget, with measures to build the so-called northern powerhouse and ensure that prosperity is not confined to London and the south-east.
The timing comes at a bad time for Labour, which has no shadow chancellor since the defeat of Ed Balls in the election. Harriet Harman, the caretaker leader, will have the task of responding to Osborne’s speech, while Chris Leslie temporarily heads Labour’s economic team.
As in the last parliament, Osborne will use the “one nation” theme of the budget to set the terms of the economic debate for the next five years while Labour is preoccupied by its own internal debates.