GEORGE Osborne yesterday unveiled a handful of eye-catching tax cuts designed to help the motorist and boost economic growth.
Businesses welcomed the chancellor’s decision to reduce corporation tax by 2p next month while a 1p per litre cut in fuel duty will help soften the blow of soaring petrol prices.
But Osborne was accused of robbing Peter to pay Paul, after he raided North Sea oil profits, hiked the bank levy and slapped a tax on carbon that will add £17-a-year to energy bills by 2015.
The chancellor said his second Budget would boost growth, but he delivered it against an increasingly uncertain economic backdrop.
The Office for Budget Responsibility (OBR) cut its growth forecast for this year from 2.1 per cent to 1.7 per cent, citing higher inflation, and hiked government borrowing forecasts; the national debt will be £44.5bn higher than expected by 2015-16. Employment will fall by 100,000 in 2011-12, the OBR said.
Osborne insisted he would not switch course and stuck to his plan to cut total public expenditure by 3.7 per cent in real-terms over four years. “Britain has a plan and we are sticking to it,” he said.
The chancellor’s 2p cut in corporation tax was twice the amount expected and will lower the headline rate to 26p from April, earning plaudits from business leaders.
And British-based multinationals cheered plans to reform the taxation of foreign profits, ensuring that the lion’s share of overseas earnings are not taxed in the UK.
UBM, which quit the UK for Ireland in 2008, said it was actively considering returning to Britain while advertising giant WPP hinted it would also consider a comeback.
But Osborne hiked the bank levy without warning for the second time in as many months to ensure the industry does not benefit from lower corporation tax.
And a 1p per litre cut in fuel duty will have wrong-footed his opponents in the Labour party, who have put soaring petrol prices at the heart of their economic argument.
However, the £600 hike in the personal allowance will be at least partially offset by Osborne’s decision to increase direct tax thresholds and bands in line with the consumer prices index rather than the historically higher retail prices index. The move will net the exchequer £1bn a year by 2015-16.
Meanwhile, the government’s decision to introduce a carbon floor price will add £6 to the average consumer’s energy bill in 2013 and £17 in £2015, Treasury aides said. Industry will bear two-thirds of the £3bn cost.
And North Sea oil companies were infuriated by an entirely unexpected windfall tax on their profits, which will raise a staggering £16bn by 2015. The industry said the move would force it to scale back North Sea oil exploration, making the UK more reliant on imports from the Middle East.
Elsewhere, the chancellor introduced a series of small supply-side reforms designed to boost growth, including a less stringent planning regime and cuts to red tape for businesses with fewer than 10 employees.