Chancellor George Osborne is expected to unveil a wealth tax on the rich and a revised welfare cuts package in a mini-budget he says is designed to hit both ends of the pay scale.
Writing in The Sun Sunday today Mr Osborne said: “We are still all in this together. Everyone must make a contribution to dealing with our debts, from the richest in our society to those living a life on benefits.”
Mr Osborne also indicated that it will take longer to cut the deficit. The fine print will not be unveiled until Wednesday’s so-called autumn statement, however.
“Every one of my budgets has raised more from the richest. The situation under Labour where top people in the City were paying lower tax rates than their cleaners has been ended. And we are hunting down those who evade tax wherever they try to hide,” Mr Osborne wrote.
“But we understand that fairness isn’t just about taxing the rich. It’s also about ending the something for nothing benefits culture. So we have introduced a new cap on benefits and are changing the welfare system with our new universal credit so that it always pays to work.”
He added: “The road ahead may be longer than we thought but it leads to a better future. Let’s have the courage to stay the course.”
The Sun cited unnamed sources saying the cuts could also include stamp duty rises on sales of luxury homes in conjunction with a squeeze on benefits.
The changes will run in tandem with a squeeze on benefits. Mr Osborne had favoured a freeze on out-of-work benefits to meet his £10bn welfare cuts target. The chancellor will also give a £1bn boost to small British exporters, The Sun reported.
The Sunday Times reported today that the chancellor is to cut the £50,000 annual tax relief cap on pensions to as little as £30,000 on Wednesday. That change would reportedly bring in up to £1.8bn a year.
With government borrowing on course to overshoot official forecasts, the chancellor has been left with little room for manoeuvre. The independent tax and spending watchdog the Office for Budget Responsibility is expected to increase the pressure by cutting growth forecasts and predicting borrowing will be billions of pounds higher than expected until 2017.
In an article for the Sunday Mirror, Shadow Chancellor Ed Balls said: “George Osborne’s failed policies will mean a difficult Christmas for families, but millionaires will raise a toast to the chancellor to thank him for their New Year tax cut.”
Mr Balls again called for the government to use funds from the 4G auction of mobile airwaves to build 100,000 affordable homes, create hundreds of thousands of jobs and cut stamp duty for first-time buyers as well as a tax on bankers’ bonuses to fund a jobs guarantee for every young person out of work for over a year.
“We need a change of course from David Cameron and George Osborne. When the medicine makes the patient sicker, you don’t just take more of it. We need to change the medicine, or change the doctor,” Mr Balls said.
Meanwhile, financial experts said Mr Osborne has two choices: a) extend his goal to cut the nation’s debt as a percentage of gross domestic product in 2015/2016 or b) make further spending cuts and increase taxes. In the last figures to be published before his statement, borrowing excluding financial interventions such as bank bailouts was £8.6bn in October, up £2.7bn on October 2011.
The Institute for Fiscal Studies warned a VAT hike from 20 per cent to 25 per cent per cent may be required to tackle the nation’s debt, which at the end of October was £1.1 trillion or 67.9 per cent of GDP.
“He may well have to choose between introducing even more austerity in the autumn statement and letting at least one of his fiscal rules slide,” said Vicky Redwood, economist at Capital Economics.
The chances of the chancellor altering the debt target were heightened after Bank of England governor Sir Mervyn King effectively endorsed such a move earlier this year.
“The chancellor’s self-defeating austerity plan is causing borrowing to rise and the economy to stagnate,” TUC general secretary Brendan Barber said today.
“So rather than make things worse and hit families even harder with yet another raid on the welfare budget, he should abandon his fiscal targets and start a fresh plan for growth.”
In a BBC television interview, Mr Osborne admitted that it was clearly taking longer to deal with Britain’s debts and recover from the financial crisis than anyone would have hoped, but “to turn back now … would be a complete disaster for our country.”
Mr Osborne declined to comment on various news reports, but did not reject the proposals directly when questioned in the BBC interview.