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Pay Rise For UK With 'National Living Wage'

Millions of the country's poorest paid people will see their wages increase after George Osborne announced a new £9-an-hour National Living Wage.

Declaring "Britain deserves a pay rise", the Chancellor said over-25s would benefit from the compulsory increase by 2020.

Mr Osborne said it would mean a direct pay rise for two and a half million people and that those currently on the minimum wage would see a £5,000 wage increase by the end of the decade.

Delivering the first all-Conservative Budget in 20 years, Mr Osborne said his economic blueprint was a "plan for working people”.

He also increased the level at which working people start to pay income tax to £11,000 from April and linked it to the minimum wage, meaning the poorest paid should never pay income tax.

But the Chancellor wielded the axe on family benefits, slashing the tax credits that cost the country £30bn a year, as part of £12bn in savings from the welfare budget.

:: Key Points - your guide to all the main announcements

Mr Osborne said the in-work benefits for those on low pay would only be paid for the first two children, but not on any further children.

He scrapped housing benefits for 18-21 year olds, froze working age benefits for four years, and slashed the income threshold at which families can receive tax credits by almost half from £6,420 to £3,850.

He also capped the amount of benefits families can receive at £20,000, £23,000 in London - down from £26,000.

Young people will be the hardest hit by the changes as the under-25s will not benefit from the new National Living wage, will lose housing benefits and will see student grants scrapped.

Interim Labour leader Harriet Harman accused the Chancellor of balancing the books on the backs of the poor and said the Budget was "making working people worse off".

She said: "This Budget is less about economic strategy, more about political tactics designed by the Chancellor to help him move in next door."

The Office for Budget Responsibility cautioned the introduction of the National Living Wage could see employers making workers redundant or reducing their hours.

Campaigners welcomed the National Living Wage announcement but raised questions about how it would be calculated.

Rhys Moore from the Living Wage Foundation said: "Is this really a Living Wage? The Living Wage is calculated according to the cost of living whereas the Low Pay Commission calculates a rate according to what the market can bear.

"Without a change of remit for the Low Pay Commission this is effectively a higher National Minimum Wage and not a Living Wage.

"What about London? We have been working with the mayor of London for seven years and there's a London Living Wage rate that recognises the higher costs in the capital, currently £9.15 per hour.

"These changes will not help the 586,000 people for whom even the 2020 rate announced today would not be enough to live on now."

But John Allan, chairman of the Federation of Small Businesses, said: "Even (Taiwan OTC: 6436.TWO - news) though offset by a welcome increase in the employment allowance, some will find the new National Living Wage challenging."

Last year, Mr Osborne had warned against significant rises in the minimum wage saying they could be "self-defeating" and could cost jobs.

The minimum wage is currently £6.50 an hour and Mr Osborne said the new National Living Wage for over 25s would be introduced at £7.20 in April before rising to £9 in 2020. The Low Pay Commission will continue to set the national minimum wage for under 25s.

Critics point out that the non-compulstory living wage is £7.85 an hour.

As Mr Osborne made the announcement, Welfare Secretary Iain Duncan Smith, who is in charge of the Government's troubled welfare reform programme, was seen punching the air and shouting "fantastic".

Labour leadership hopeful Liz Kendall wrote on Twitter (Xetra: A1W6XZ - news) : "Calling it a living wage doesn't make it one. Current level outside London is £7.85 - once again, Osborne falls short."

Her rival Yvette Cooper tweeted: "Red book shows big delays in promised childcare & over £4bn cut from tax credits next yr alone. Working parents hardest hit by #Budget2015"

The Liberal Democrats said: "Amongst the gimmicks and giveaways, the Chancellor has hidden four more years of pain, austerity, and cuts.

"The Tories used to say we were in it together, but this Budget says - you're on your own."

Rhys Moore, director of the Living Wage Foundation, said: "The Living Wage is calculated according to the cost of living whereas the Low Pay Commission calculates a rate according to what the market can bear.

"Without a change of remit for the Low Pay Commission this is effectively a higher National Minimum Wage and not a Living Wage."

Other measures included in the Budget included a boost for the middle class with an announcement that Inheritance Tax would no longer be paid on properties up to £1m - a move expected to benefit one million properties.

And Mr Osborne raised the threshold for the 40p tax rate from £42,385 to £43,000 from 2016.

However, the Institute for Fiscal Studies has calculated that there are £6.5bn tax rises.

He also scrapped permanent non-dom status that allows people to avoid paying tax in the UK saying: "British people should pay British taxes".

Mr Osborne said that those who had lived in Britain for more than 15 years would lose their entitlement to non-dom status from April.

The measure will raise £1.5bn for the Treasury and Mr Osborne said £5bn would come from tackling tax evasion and avoidance.

Other Budget measures included:

:: A further £8bn for the NHS.

:: Reduction of the bank levy rate over six years

:: Road tax reform - new cars to be taxed on emissions from 2017. Will pay for new roads fund

:: Student grants scrapped and replaced with loans from 2016-17 - to be repaid by graduates when they earn over £21,000 a year. Tuition fees to rise in line with inflation

:: Further powers for Manchester and new powers for the West Midlands

:: £30m for an Oyster card service for cities including Sheffield, West Yorkshire, Liverpool

:: Corporation tax to be cut from 20% to 19% in 2017 and 18% by 2020 - a 10% drop since the Conservatives came to power

:: 30 hours free child care for three and four year olds from September 2014

:: Commitment to 2% of GDP defence spending

In delivering his Budget, Mr Osborne set the direction of the Government for the next five years and his statement will be seen as a blueprint for his leadership bid ahead of 2020.

David Cameron has said he will not stand for another term and tipped Mr Osborne, Boris Johnson and Theresa May as his successors.