George Osborne has announced the introduction of a compulsory living wage as he delivered the first Tory-only budget for almost 20 years.

From April 2016, a new National Living Wage of £7.20 an hour for the over-25s will be introduced, rising to £9 an hour by 2020.

"Britain deserves a pay rise," Osborne declared as he delivered a wide range of fresh policies.

Dubbing the budget as one for "working people from a one-nation government", he also raised the 40p rate of tax to £43,000 from 2016 and reiterated his stance to increase it to £50,000 by 2020.

Millions of low-paid workers were also buoyed by an increase in the threshold for basic tax to £11,000 from 2016 in moves Osborne claimed would benefit 29 million people.

However, the chancellor also confirmed stinging £12bn cuts to the welfare bill, scrapped student grants and said a four-year freeze on public-sector pay would be implemented.

The Conservatives will slash tax credits, freeze working-age benefits for four years and withdraw housing benefit from 18 to 21 year olds. The benefits cap will also be cut, to £23,000 in London and £20,000 outside the capital.

Osborne said his budget represented a "plan for Britain for the next five years to keep moving us from a low wage, high tax, high welfare economy; to the higher wage, lower tax, lower welfare country we intend to create".

Budget highlights

  • As of April 2016, there will be a new compulsory National Living Wage for over-25s. It will start at £7.20 an hour and will rise to £9 an hour by 2020
  • Tax credits are slashed, defence spending guaranteed to meet 2% of national income and devolution to Manchester, Sheffield, Liverpool and Leeds
  • Inheritance tax threshold is raised to £1m while the public sector pay rises were capped at 1% for the next four years
  • Corporation tax will fall to 19% in 2016 and 18% in 2017
  • An 8% surcharge on bank profits will be introduced from January 2016
  • The personal allowance will be raised to £11,000 and the 40p threshold will start at £43,000

One of the most surprising announcements was a tax raid on buy-to-let landlords from 2017, with the chancellor saying tax relief currently available to landlords on their mortgage interest payments would be reduced to match the basic rate of tax.

In widely trailed measures, the inheritance tax threshold was raised to £1m for married couples by 2017 and the bank levy was reduced in favour of a new 8% tax on banking sector profits from January 2016.

Osborne also declared the "age of irresponsibility" had ended as he lauded figures that showed Britain is the fastest-growing major economy in the world.

Figures from the Office for Budget Responsibility published on 8 July forecast GDP growth of 2.4% for 2015 and 2.3% in 2016.

The chancellor also announced the abolishment of permanent non-dom tax status from April 2017. The change applies to individuals who have lived in the UK for 15 of the past 20 years.

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