GEORGE Osborne yesterday announced he was scrapping the 50p rate as he unveiled a raft of tax cuts for individuals and businesses – but he decided to stage a raid on pensioners, banks, buyers of £2m properties and other groups to fund his headline grabbing measures.
In what he described as a Budget that “unashamedly backs business”, the chancellor said he was cutting corporation tax by two percentage points to 24 per cent. The headline rate will then fall by one per cent in each of the next two years to stand at 22 per cent by 2014.
The chancellor’s aides said the cut in business tax along with a reduction in the top rate for high earning individuals from 50p to 45p would send a “strong signal that Britain is open for business”.
Osborne said he had decided to cut the 50p rate after HM Revenue and Customs and the Office for Budget Responsibility said it had raised far less than hoped and could have even lowered the overall tax take.
He said: “No chancellor can justify a tax rate that damages our economy and raises next to nothing.”
Labour leader Ed Miliband dismissed the Budget as one which would see “millions pay more while millionaires pay less” and said the chancellor had abandoned his promise that “we’re all in this together”.
Osborne said the main aim of his Budget was to “support working families” and to that end he said he would increase the threshold at which people start paying tax by £1,100 to £9,205 in 2013, the largest real-terms hike in the allowance for thirty years.
In a bid to prevent a middle England backlash against plans to strip higher-rate tax payers of their child benefit, the chancellor also said that only those families with someone earning over £50,000, rather than £42,000, would lose the benefit.
Even then it will be taken away gradually at a rate of one per cent for every £100 earned over £50,000 to a maximum of £60,000.
For the first time since coming to power in 2010, Osborne delivered his Budget against a slightly improving economic backdrop, but with public debt set to peak at 76 per cent of GDP in 2014-15, the government’s finances remain in a parlous state.
Having decided against further spending cuts, Osborne launched a series of raids to fund the corporation tax cut and the hike in the personal allowance, which will reduce the exchequer’s revenues by a combined £17bn over the next five years.
The chancellor said he would raise £3bn over the next five years by freezing tax allowances for pensioners in a politically risky move that was quickly dubbed a “granny tax”.
He announced a series of measures that will hurt buyers of Britain’s most expensive properties, including a hike in stamp duty on £2m houses from five per cent to seven per cent.
Osborne also said he would close a loophole that allows wealthy home buyers to avoid stamp duty by purchasing a £2m property using a company, and that he would consult on an annual charge for those who had used this method in the past.
Meanwhile, he hiked the levy on banks yet again to ensure they do not benefit from the corporation tax cut, raising £1.8bn for the exchequer over the next five years.