British Budget 2012: £2bn spending cut funds tax breaks for 20 million people
CHANCELLOR George Osborne will unveil public spending cuts of up to £2bn to fund a reduction in income tax for more than 20 million people.
As the centrepiece of the Chancellor’s Budget, the tax-free personal allowance is expected to rise to about £9,000 in April 2013, an increase of more than £1,000 from the current level.
The move will cut the tax bills for anyone earning less than £100,000 by £179 annually and will lift two million people out of paying tax.
Mr Osborne is expected to announce that the tax-free allowance will then rise again to £10,000 in April 2014 - saving most taxpayers another £250 annually — a year earlier than planned. To offset this tax break, tax loopholes and reliefs used by the wealthy will be closed.
There will also be an unexpected cut in spending of up to £2bn to fund the tax reduction, The Daily Telegraph has learned.
The decision to increase the tax-free allowance “further and faster” will be seen as a success for Nick Clegg, the Liberal Democrat leader, who took the unusual step of publicly calling for the rise in January.
The increase, above that already planned, will cost more than £3bn before the next election and will be largely funded by “efficiency” savings across Whitehall.
However, the Conservatives have also secured a cut in the 50p top rate of tax to 45p from April 2013 under the Coalition deal. Ministers will claim that the wealthy will end up paying more tax, largely through changes to the stamp duty system.
Mr Osborne is understood to believe that the Budget will outline a significant package of “tax reform and simplification”. Other key points are expected to include:
A new top rate of six per cent stamp duty on properties costing more than £2 million, and curbs on stamp duty abuse by foreigners.
Moves towards the so-called “tycoon tax”, under which millionaires pay a minimum rate of tax.
An anti-avoidance rule will be introduced to allow the tax authorities to claw back money from any scheme set up simply to avoid paying tax.
Diluting plans to scrap child benefit for higher-rate taxpayers.
Fuel duty is expected to rise by 3p a litre in August despite petrol prices rising to a record high.
The increase in the tax-free personal allowance is the biggest single item of expenditure in the Budget.
Under the Coalition deal, the allowance had been due to rise from £6,475 in 2010 to £10,000 by 2015. It previously only rose in line with inflation or rises in wages.
The tax-free allowance stands at £7,475 and will increase to £8,105 this April. It was due to rise to £8,735 in April 2013, but is now expected to rise to about £9,000.
Each £100 increase in the personal allowance, above inflation, costs the Exchequer £500m.
Last night, a Treasury source said: “This move will form the centrepiece of the Budget. Nick Clegg openly called for the measure but George Osborne was more than happy to agree to this. It illustrates the Coalition working well together.”
The Daily Telegraph understands that the Chancellor will stick to the tax and spending “envelope” outlined in the pre-Budget report. However, there will be an “overall cut in spending” in the “low billions” to balance the books.
While Mr Osborne is keen to portray the measures as aimed at “working people”, the decision to cut the 50p top rate of tax is likely to prove the most controversial.
Last night, an ITV News/Comres poll found that 59 per cent of those questioned said they expected the budget to “look after” the rich more than the poor. More than half of those polled disagreed that the Government had got the balance right between spending cuts and promoting economic growth.
Mr Osborne will also publish an HMRC study on the 50p top rate of tax which is expected to show it failed to raise the predicted revenues.
The Chancellor presents the Budget to the Cabinet this morning before unveiling the measures at 12.30pm in the House of Commons.