Osborne offers country 'new contract' as part of Budget 2015

He said businesses will have to pay higher wages but get lower taxes in return - and workers will get higher pay but fewer benefits.

This created a "new centre" in British politics and a "fair deal" for taxpayers and those on welfare.

 

Labour has attacked the Budget for being too hard on the poor and called the National Living Wage a "con".

Mr Osborne unveiled the Living Wage in a surprise announcement at the end of his Budget speech. Paid to over-25s, it will start at £7.20 and rise to £9 an hour by 2020.

He hit back at criticism from some businesses, who say they will not be able to afford to pay the new rate.

'Free ride'

The chancellor told BBC Radio 4's Today programme there were some "really great British companies" but others that "frankly have taken a free ride" by not training their own workforce and using the training that others have provided.

He said Britain has a "welfare system that is unsustainable" and that we "can't have a welfare system that just grows and grows and grows".

He said his aim was to create a welfare system that was "fair to those who need it and fair to those who pay for it".

BBC political editor Nick Robinson said the living wage pledge, as well as announcements on apprenticeships and the taxation of so-called non-doms, represented "a ruthless raid on Labour's manifesto".

Mr Osborne made the surprise announcement about the living wage at the end of his speech, saying that workers aged over 25 would be entitled to it from next April, to soften the impact of in-work benefit cuts.

The current minimum wage, which applies to those aged over 21, is £6.50. Those entitled to the "living wage" will get £7.20 and that will rise to £9 an hour by 2020. Labour had vowed to increase the minimum wage to £8 by 2020 during the general election campaign.

As the Commons begins to debate the content of the Budget, influential think tank the Institute for Fiscal Studies will give its verdict.

Mr Osborne also scrapped student grants and froze working-age benefits but increased the overall tax take to slow the pace of welfare cuts.

Other measures included: 

• An increase in the inheritance tax threshold to £1m for married couples by 2017
• Working-age benefits to be frozen for four years - including tax credits and local housing allowance, but excluding maternity pay and disability benefits
• Maintenance grants for students - paid to students with family incomes below £42,000 - to be scrapped and converted into loans from 2016/17
• Scrapping housing benefit for under-21s
• Corporation tax cut to 18% by 2020
• Restrictions on tax breaks for "buy-to-let" landlords
• A commitment to meeting the Nato target of spending 2% of national income on defence
• Fuel duties frozen for the remainder of this year
• New car tax bands with a standard charge of £140 - and new cars will not need MOTs for the first four years, rather than three
• A fresh clampdown on public sector pay, which will be limited to 1% a year for the next four years
• Pensions tax annual allowance to be tapered away to a minimum of £10,000 from next year
• Confirmed that the BBC has agreed to absorb the £650m cost of providing free television licences for over-75s 

Mr Osborne unveiled a downgraded growth forecast for the UK this year, of 2.4%, and pushed back the date at which the UK's public finances would move into surplus by a year to 2019/20.
The Office for Budget Responsibility said public spending would be £83bn higher over the next five years than Mr Osborne said in his March Budget - and the £24.6bn tax cuts announced in the Budget would be dwarfed by £47.2bn in tax rises, including the car tax changes and increasing the tax on insurance premiums from November.
Welfare cuts would add up to £35bn over the next five years.