George Osborne delivers a Budget that "rewards work"
The 50 per cent income tax rate for higher earners will be cut to 45 per cent
The headline rate of corporation tax will be cut to 24 per cent
There will be a new stamp duty of 7 per cent on properties worth more than £2m
George Osborne has cut tax on high earners and companies while also lifting more lower earners out of income tax, in a Budget he said “rewards work” and “unashamedly backs business”.
However, the budget was close to fiscally neutral as the chancellor reaffirmed Britain’s commitment to austerity.
On tax, the biggest battleground ahead of the Budget, the chancellor said the 50 per cent income tax rate for higher earners, which has attracted fierce criticism from businesses and rightwing Conservatives, will be cut to 45 per cent.
The 50 per cent rate has created “massive distortions”, Mr Osborne said, and the increase from 40 per cent to 50 per cent raised only a third of what was promised. “It raises at most a fraction of what we were told and may raise nothing at all.”
“No chancellor can justify a tax rate that damages our economy and raises next to nothing, it is as simple as that,” he said. The new taxes on the rich contained in this Budget will raise £500m, he said, five times the £100m cost of cutting the 50 per cent rate.
The headline rate of corporation tax – already cut from 28 to 26 per cent – will be cut to 24 per cent.
By 2014 Britain will have a 22 per cent rate – “dramatically lower” than other countries such as the US and Germany, which he said was “an advertisement for investment and jobs in Britain.” He also pledged to set a target to align corporation tax with the basic rate of tax.
Mr Osborne said tax evasion and aggressive tax avoidance were “morally repugnant” and said he hoped to raise £1bn over five years through anti-avoidance measures. He also promised a general anti-avoidance rule to counter aggressive and “artificial tax avoidance”.
He also promised to levy charges on residential properties owned by companies to try to stop people from using companies to avoid paying stamp duty. “People have been warned.”
From midnight, there will be a new stamp duty of 7 per cent on properties worth more than £2m, he said, confirming leaked reports.
There will also be limits on previously uncapped income tax relief for anyone seeking to claim more than £50,000, Mr Osborne said.
Child benefit will begin to be withdrawn when the highest earner in a family earns £50,000 but will not be fully withdrawn unless the highest earner is on a salary of £60,000, Mr Osborne said, easing the “cliff edge” effect of the earlier proposal.
He also increased the amount people can earn before paying tax from £8,105 to £9,205 – a policy that will kick in from April 2013.
“In the middle of this parliament, in difficult economic times, this government has not settled for a ‘do nothing’ budget,”, Mr Osborne said. “This country borrowed our way into trouble, now we’re going to earn our way out,” he said to roars of approval from his own benches.
The chancellor said Britain would “earn its way in the world” and use a deliberate strategy to back its most successful industries such as aerospace, pharmaceuticals and science.
Britain will become Europe’s “technology centre”, the chancellor said, offering tax credits to the video game and high-end television production industries. “It is the policy of this government that we keep Wallace and Gromit exactly where they are,” he said to loud cheers.
The government measures launched on Tuesday to improve the access of medium-sized business to finance had been extremely popular and would be expanded, he said. Britain must do more to make the country a competitive place to do business, he said, and promised to be “out in front” of other countries.
In response to the economic pressures of an ageing population, the state pension age will increase automatically in line with changing longevity, Mr Osborne said, though the details of this policy will not be published until July.
Mr Osborne said he would freeze income tax allowances for most pensioners in cash terms, and promised a new “single tier pension” of £140 a week to replace the state second pension.
The Office for Budget Responsibility’s forecast for the economy is broadly unchanged from its previous forecast in November, though the economy has a “little more momentum” this year, he said.
It revised its growth forecast for this year from 0.7 per cent to 0.8 per cent, and from 1.8 per cent to 2 per cent for next year. It also predicted the number of unemployment claimants would peak at a lower level of 1.67m this year.
“We must stick to the course and there will be no deficit funded giveaways today,” Mr Osborne said.
Government borrowing this year will be £126bn, £1bn lower than forecast in the autumn. “Our deficit reduction plan is on course and we will not waver from it,” Mr Osborne said. Such a move would risk a loss of market confidence and higher interest rates. “We will not risk that.”
Export finance will be expanded to help the country’s manufacturing sector tap emerging markets. He also hinted at the need to address the lack of airport capacity near the capital: “We cannot cut ourselves off from the fastest-growing cities in the world,” he said, promising a report in the summer on the controversial issue. Transport to the north of England would also not be neglected.
The government is also supporting the development of “ultrafast” broadband in the country’s large cities.
Mr Osborne criticised the “cumbersome” carbon reduction commitment, a policy from the previous government, and said if he could not improve it he would abolish it and replace it with an environmental tax.
The chancellor also promised an overhaul in planning regulations and “business red tape”, and legislation to relax Sunday trading laws over the period of the Olympics.
Young people might benefit from “enterprise loans”, the chancellor suggested, though the policy has yet to be written.
The Treasury is publishing evidence on the benefits of varying pay on a regional basis in the public sector, and some parts of government will be eligible to set pay locally once the public sector wage freeze ends.
The cost of the Afghanistan conflict will be £2.4bn lower than expected and some of these savings will go to the armed forces, the chancellor said.
He also pledged a big rise in tobacco tax – by 5 per cent above inflation – which will be effective immediately. On fuel prices, which have climbed to record levels this year, Mr Osborne said fuel duty would rise in August as planned.