Budget 2015: Osborne offers country 'new contract'
Chancellor George Osborne has rejected criticism of his Budget insisting it offers the country a "new contract".
He said businesses will have to pay higher wages but will pay lower taxes in return - while workers will get higher pay but fewer benefits.
This created a "new centre" in British politics and was a "fair deal" for all, he told BBC Radio 4's Today programme.
Labour has attacked the Budget for being too hard on the poor and called the National Living Wage a "con".
Mr Osborne unveiled the National Living Wage in a surprise announcement at the end of his Budget speech on Wednesday. Paid to over-25s, it will start at £7.20 and rise to £9 an hour by 2020.
But a £4.5bn cut to tax credits, part of a £12bn package of welfare cuts announced on Wednesday, will kick in next April, leading Labour to accuse Mr Osborne of "pulling the rug from under" many poor families.
Tax credits were introduced in 2003 by Gordon Brown to top-up the wages of low paid workers but Mr Osborne said their cost had ballooned to an unsustainable £30bn a year and he wanted to make businesses give their workers a pay rise instead.
He will also make firms fund more apprenticeships through a new levy.
The chancellor said 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".
The living wage will give a pay rise to six million workers but is expected to cost 60,000 jobs, according to the Office for Budget Responsibility.
But Mr Osborne said other measures in his Budget would help create a million more jobs.
Analysis by Political Editor Nick Robinson
George Osborne's stated aim was to create what he called a "new settlement". That's politician's code for re-writing the rules of politics to suit your side.
So it is that he did something rather surprising - slowing and softening spending and welfare cuts now having promised faster and deeper cuts in the run up to the election.
"What I'm offering is a new contract with the country," Mr Osborne told Today.
"What we're saying to business is pay higher wages but you get lower taxes, what we're saying to people is you get a bigger pay cheque but there will be a less generous benefits system.
"What we're saying to the country is we're going to spend less but we're going to live within our means. And that is the new settlement, I think it's the new centre of British politics."
Working tax credits, which top up the wages of four million low paid workers, will be squeezed by £4.5bn, with about half a million people losing them altogether.
Shadow Chancellor Chris Leslie said: "Don't underestimate how important those tax credits have been for many, many people who will be waking up this morning and, I think, left reeling by the massive reduction to
their quality of life that will come because of the nature of this set of decisions."
Other Budget measures included:
An increase in the inheritance tax threshold to £1m for married couples by 2017
A new levy on big businesses to help to fund three million more apprenticeships
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
The Treasury confirmed the living wage would apply to both the public and private sectors.
The Local Government Association said it welcomed the move, but warned it would add a "potential upward pressure" to council budgets and said it expected local authorities to be compensated.
Labour leadership contender Yvette Cooper, who claimed women would be hit harder than men by the measures in the Budget, said the new rate should "certainly not" be called a living wage.
Shadow health secretary Andy Burnham - who is also bidding to become Labour leader - said he would have paid the rate to all workers, accusing the government of "age discrimination in pay".
Labour leadership contender Liz Kendall said the National Living Wage was a "con", while the fourth MP vying for the job, Jeremy Corbyn, said it was the "same narrative of cutting taxation for the very richest, making life worse for the
very poorest and selling off state assets to pay for it" the Tories had pursued 20 years ago.
Business groups gave a mixed reaction to the National Living Wage pledge, with the Institute of Directors saying it was "time for companies to increase pay" but the CBI said the government was taking "a big gamble" on wage increases
that industry might not be able to deliver.
The Living Wage Foundation director Rhys Moore said the proposed £9 rate was a "massive victory" for campaigners, but that it was "effectively a higher national minimum wage and not a living wage", due to the different ways the two rates are calculated.
The TUC welcomed the announcement but said Mr Osborne was "giving with one hand taking with the other" and "massive cuts in support for working people will hit families with children hardest".