by a Newsnet reporter
Conservative Chancellor George Osborne has announced a cut of 5p in the 50p top rate of income tax, paid by those earning over £150,000 annually. The cut will come into effect next year. In a move the Chancellor says will benefit the low paid, the personal tax allowance will rise to £9,205 annually. Mr Osborne claimed his budget “rewards work and unashamedly backs business”.
Mr Osborne said the 50p rate had distorted the economy by encouraging tax avoidance, and cutting it to 45p would cost the exchequer £100m annually. He said: “[The top tax rate] raises at most a fraction of what we were told, and it may raise nothing at all.” Mr Osborne insisted that the rich would pay five times more tax as a result of all the measures in the Budget taken together.
The introduction of a tax cut for the wealthiest during times of austerity is bound to be controversial. The Chancellor attempted to neutralise the criticisms with the announcement of an increase on stamp duty on properties worth more than £2 million and a measure to levy a 15% tax on such properties bought through companies. Purchasing properties through companies has been a popular tax avoidance strategy by the wealthy. The chancellor promised “swift and retrospective” action would be taken if means of avoiding paying the new tax on property sales were to be found.
The Chancellor announced that corporation tax would be cut faster and more deeply than planned in a bid to get businesses to invest more and create extra jobs. The headline rate of corporate tax will fall from 26 per cent to 24 per cent from April – which is one percentage point more than expected. Future cuts will see the rate drop to 23 per cent in April 2013 and 22 per cent in April 2014.
However there was little in the Budget for the poorest in society. The Chancellor said that the Government’s next spending review “will have to confront” the issue of soaring welfare costs, and said the Government would need to make annual £10.5bn savings by 2016 in order to maintain the current rate of reductions in departmental spending fixed through the 2010 settlement.
Child benefit cuts will be phased in for those on more than £50,000. Only those earning more than £60,000 will lose child benefit entirely. The withdrawal of the benefit will be tapered for households where someone earns over £50,000, and will reduce by 1% for every £100 over that figure.
Mr Osborne announced a rise in tobacco tax by 5% above inflation, which will add 37p to a packet of 20 cigarettes. Motorists will also be hit, there will be a 3p rise in fuel duty, which will be implemented in August.
In another move to increase revenues, the Chancellor announced that he will phase out the higher income tax allowance which is currently enjoyed by around five million elderly people. From next year, people turning 65 will no longer automatically qualify for the higher personal tax allowance of £10,500 annually. The measure will affect the incomes of around half the pensioners in the UK and is expected to raise £3.3 billion for the Treasury over the next 5 years.
The tax raid on pensioners was condemned by organisations representing older people. Dot Gibson, general secretary of the National Pensioners’ Convention, said: “The decision to freeze the age related personal tax allowances effectively means around five million pensioner tax payers will no longer get additional reductions in their tax over the coming years – whilst those on the top rate of tax will see their bills reduced.
“Many older people will feel they are being asked to forego their reduction in tax to help out the super rich. There’s no fairness in that.”
The financial sector also expressed reservations about whether the Budget would boost the economy. Eimear Daly, FX Market Analyst at industry leading currency broker, Schneider Foreign Exchange believes that the Budget 2012 will not provide enough stimulus to the economy:
Ms Daly said: “The main message of the Budget was that austerity is still in the driving seat. A threat to the UK’s AAA credit rating has scared the Treasury into a budget that substitutes tax rises for levies and tax cuts for higher credits.
“Whoever the net benefactor of this budget, rich or poor, the UK economy will not be boosted by its measures. Budget 2012 is not the Budget for growth.”
Paul Kenny, general secretary of the GMB, said: “The different treatment of people at either end of the income scale is stark. Ordinary families are losing their tax credits and child allowances and suffering pay freezes while people on top salaries of £150,000 to £1 million a year are getting cash hand outs.”
Labour leader Ed Miliband said the budget was “unfair, out of touch, for the few not the many” and was based on the “wrong choices, wrong priorities, wrong values” from the “same old Tories”. He added, “Today marks the end of ‘we are all in it together’.”
Mr Miliband dismissed the increase on stamp duty for the most expensive homes, saying that most top earners would “totally unaffected” by it as only around 4,000 homes worth more than £2m are sold each year.
Speaking to the BBC, SNP Westminster leader Angus Robertson MP said: “There’s nothing new, but the overarching failure for me is on fairness … It’s literally back to the 80s. We see a Tory government which people in Scotland didn’t vote for cutting taxes for the rich.
“The UK govt is basically giving a tax cut to its supporters, the rich in society.”