Chancellor George Osborne cuts the 50p rate of tax to 45p from April 2013 and announces changes to his plans to withdraw child benefit from all 40p taxpayers.
• 50p tax rate cut to 45p
• Child benefit cuts watered down
• Pensioners’ personal allowances frozen
• New taxes on £2m homes
• No cut in fuel duty rise
Mr Osborne said the 50p rate on earnings over £150,000, which was introduced by Labour, had only raised a third of the £3bn expected and would be scrapped. This prompted Labour leader Ed Miliband to accuse him of giving millionaires “a massive income tax cut each and every year”.
The chancellor watered down his plans to withdraw child benefit from 40p taxpayers, saying the benefit would be reduced incrementally when one member of a household earns more than £50,000 and removed completely at £60,000. The original plan was for child benefit to be taken away from any household in which at least one person earned about £43,000.
More than four million pensioners face an unexpected hit, with their personal tax allowances frozen in April 2013 and pegged in future to the lower allowances of working people.
Working people’s allowance, above which 20p tax is paid, will rise by £1,100 to £9,205, benefiting “every working person on low or middle incomes”. The coalition government has promised to increase the tax-free allowance to £10,000 by 2015.
Mr Osborne also announced a crackdown on what he called “morally repugnant” tax avoidance, with new levies on expensive homes bought through companies.
People who have avoided stamp duty by buying residential properties worth more than £2m through firms will be hit with a 15 per cent tax immediately. Other homes bought for more than £2m will attract a stamp duty rate of 7 per cent from midnight (compared with 5 per cent now).
The chancellor said his measures would raise five times more from the wealthy than the 50 per cent rate.
Mr Osborne said his budget was “fiscally neutral”, with “a modest reduction in both taxation and spending”. He signalled another £10bn of welfare cuts, on top of those already announced, and implied that people will have to work longer before they claim their state pensions.
“I can confirm today that there will be an automatic review of the state pension age to ensure it keeps pace with increases in longevity,” he said.
Bob Rothenberg, from chartered accountants Blick Rothenberg told Channel 4 News: “The whole package seems a good conjuring trick. It will be interesting to see whether it really is as positive as presented. After all, he started by saying it was fiscally neutral. So overall, as there appear to be so many winners, the losers must be paying a lot. Time will tell.”
Mr Osborne said the independent Office for Budget Responsibility had concluded that Britain would avoid a recession, with growth revised slightly upwards from 0.7 to 0.8 per cent in 2012.
The economy had “carried a little more momentum into the new year than previously anticipated” and growth was expected to hit 2 per cent next year and 2.7 per cent in 2014.
Borrowing this year will be £126bn, £1bn lower than forecast, according to the OBR. Over five years, it will be £11bn lower.
Mr Osborne said he would double April’s cut in corporation tax to 2 per cent, with further falls to 22 per cent.
Fuel duty will rise by 3p in August, as already announced, vehicle excise duty will increase in line with inflation and cigarettes will go up by 37p a packet.
Labour leader Ed Miliband criticised the chancellor’s decision to scrap the 50p rate, saying: “A year ago the chancellor said in his budget speech, ‘Now would not be the right time to remove the 50p tax rate when we are asking others in our society on much lower incomes to make sacrifices.’
“That is exactly what he has done: tax credits cut, child benefit taken away, fuel duty rising – and what has he chosen to make his priorities? For Britain’s millionaires, a massive income tax cut each and every year.”
The Road Haulage Association also criticised the move. Chief executive Geoff Dunning said: “Mr Osborne has taken a wrong turning and is driving us in the wrong direction on fuel duty. His decision will cost jobs, especially in the more remote parts of the UK.
“Diesel fuel is now the most expensive it has ever been – the RHA’s weekly fuel price survey last week hit an all-time record high – and yet the chancellor will be driving up costs by another £1,200 a year for a large truck – costs that hauliers must now set about trying to recover from their hard-pressed customers.”
The chancellor’s room for manoeuvre was limited by official figures, released on Wednesday, showing that government borrowing in February was far higher than expected.
What a government borrows is determined by how much it spends and raises in tax receipts.
The City had forecast a £7.9bn rise, but the figures from the Office for National Statistics (ONS) show a jump of £15.2bn.
Total borrowing for the first 11 months of the year is £110bn. The government’s target for the whole year is £127bn, which means that if the borrowing figure for March exceeds £17bn, the target would be missed.
The ONS said government spending in February was 8 per cent higher at £43.3bn – because of a rise in welfare benefits