12:07pm Wednesday 21st March 2012
By Nigel Burton
The Chancellor risked the wrath of the British people by cutting tax for millionaires at the same time as warning workers on lower incomes they may have to work longer.
George Osborne promised a simpler tax system, far reaching reforms, a system where millions on low pay are lifted out of paying tax altogether.
Among the major announcements was a new pensions system that will be easier to understand and a major reduction in corporation tax.
Alcohol duty will rise by 2% above the rate of inflation as part of automatic increases implemented in 2008 while duty on tobacco rises 5%. The result is over 5p extra on a pint and a staggering 37p on a packet of cigarettes. Road tax increases by inflation and the increase in fuel duty already proposed will go ahead later this year. Duty was frozen for road hauliers.
Perhaps most controversially, the 50p top rate of tax for the richest in society has been cut to 45p from 2013.
He pressed ahead with the move – unpopular with some Liberal Democrats – after revealing that an official report by the taxman had found it was raising ‘‘next to nothing’’.
He also reduced proposed cuts to child benefits paid to the better off.
But he increased the threshold at which everyone starts paying tax to £9,205, claiming millions of working people would be £220 a year better off as a result.
The cut in the top rate of income tax to 45p in the pound for all income over £150,000 from April 2013 was countered with a hike in stamp duty on homes worth over £2 million from 5% to 7%.
The Chancellor also confirmed a crackdown on various tax loopholes used by the rich including a 15% stamp duty rate on homes held through companies.
Overall, Mr Osborne claimed his measures would raise five times more from the wealthy than the 50% top rate introduced by Labour.
The Chancellor also watered down plans to withdraw child benefit from rich families. Child benefit will only be withdrawn if someone in the house earns more than £50,000 – and only gradually.
This means an extra 750,000 families earning substantially more than the average wage will keep some form of child benefit.
He said: “We will earn our way in the world by providing new growth friendly planning rules.”
However, he warned of the risks posed by the Eurozone crisis and Iran. He said the Office for Budgetary Responsibility expected the UK economy to avoid a recession. The OBR’s growth figure for 2012 is 0.8 per cent and 2 per cent next year, and 2.7 per cent in 2014.
According to the OBR, unemployment will peak at 8.7 per cent this year before falling back.
The claimant count estimate revised down by around 100,000 for each of the next four years, peaking at 1.67 million this year, rather than the predicted 1.8 million.
Inflation is expected to fall to 1.9 per cent next year – just below the Government’s 2 per cent target.
The deficit is also falling.
The borrowing forecast has been revised downwards by £1 billion to £126 billion for 2011/12, then £120 billion in 2012/13, £98 billion in 2013/14, then £75 billion and £52 billion, reaching £21 billion by 2016/17.
“We must stick to the course,” said Mr Osborne. “There will be no giveaways today.
“Some would have been tempted to spend the windfall.
“I do not propose to spend it. Instead, I have used it to pay off debt.”
However, he warned that millions of workers may have to work longer before they can retire.
Mr Osborne told MPs: ‘‘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.’’ That raised the prospect of ever long working lives.
Mr Osborne also set a target for savings in the welfare budget of £10 billion by 2016.
“We will also maintain our control on welfare spending.
“The passing of the Welfare Reform Act two weeks ago was an historic moment.
“I pay tribute to my Right Honourable Friend the Work and Pensions Secretary and to all my coalition colleagues for supporting him against determined opposition from those who defend unlimited welfare.
“But even with the Act, the welfare budget is set to rise to consume one third of all public spending.
“If nothing is done to curb welfare bills further, then the full weight of the spending restraint will fall on departmental budgets.
“The next Spending Review will have to confront this.
“So I am today publishing analysis that shows that if in the next Spending Review we maintain the same rate of reductions in departmental spending as we have done in this review, we would need to make savings in welfare of £10 billion by 2016.
“We will also address the rising costs of an ageing population, and the burden this places on future generations.
“We will be publishing a White Paper on social care.
I’ve also said that we would consider proposals to manage future increases in the state pension age, beyond the increases already announced.
“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.”
One area where future government spending is expected to be lower than planned is Afghanistan.
Mr Osborne also announced a £100m improvement in Forces’ accommodation.Forces serving overseas will also receive 100 per cent relief on the average council tax bill, and the families welfare grant will be doubled.
Among the transport infrastructure announcements was a plan to extend the electrification of the Trans-Pennine route.
The Get Britain Building Fund, which provides finance for construction, is to be expanded. The Finance Partnership is to be expanded by 20 per cent and the Enterprise Finance Guarantee will also be expanded.
The UK must ‘‘confront’’ the lack of airport capacity in the south east, said Mr Osborne. Announcements are due later this summer.
The Government is to support £150 million of tax increment financing to help councils promote development and provide an extra £270 million for the Growing Places fund.
Ultra-fast broadband and wi-fi is to be pioneered in ten of Britain’s biggest cities, including Newcastle.
New tax breaks and incentives for the film, animation and video games industry were also announced.
To roars of approval the Chancellor joked: “I intend to keep Wallace and Gromit here, where they belong.”
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