Osborne to hike tax allowances

GEORGE Osborne will today unveil small tax cuts, help for first-time buyers and a series of symbolic measures to show he is tough on the rich.

But his Budget could be overshadowed by spiralling inflation and weaker public finances, preventing him from pulling any rabbits out of his hat.

The chancellor will announce that he is increasing the personal allowance by £600 from April 2012 to £8,075 for all but the wealthiest, equivalent to a tax cut of £45-a-year.

Unlike this April’s increase, which sees the threshold rise by £1,000 to £7,475, this hike will not be funded by pushing more people into the higher rate 40 per cent income tax bracket.

The Treasury estimates that 25m earners will benefit from the tax cut, which will cost the exchequer around £1bn. But those earning over £100,000 will lose out as their personal allowance is tapered away while those on over £115,000 will not benefit at all.

Meanwhile, Osborne will unveil a £250m package to help first-time buyers get on the property ladder while providing a timely boost for the construction sector.

Under the shared equity scheme, buyers with a combined income under £60,000 can apply for a loan worth up to 20 per cent of a property.?They will then contribute five per cent of their savings to generate a 25 per cent deposit, before taking out a 75 per cent mortgage.

Osborne will say that the scheme – which will only be available for new-builds – will help 10,000 first-time homebuyers and create 40,000 construction jobs.

Other measures – including deferring a 1p increase in petrol duty and scrapping a planned hike in air passenger duty –?will go some way to mitigating the soaring cost of fuel.

In a bid to boost growth, the chancellor is also likely to announce some reduction in the regulatory burden, especially for smaller firms.

And he will reform the taxation of foreign profits made by multinational corporations in an attempt to lure back firms which have quit the UK?for tax reasons. He is currently in talks with Sir Martin Sorrell about the possible return of advertising giant WPP, which moved to Ireland in 2008.

However, in a bid to wrong-foot opponents who say he is being too kind to the rich, Osborne will unveil a new tax on private jets and close £1bn of tax avoidance loopholes.

A fresh assault on non-doms, people who originate from overseas and pay tax on their UK?income but not overseas earnings, is also planned.

But the chancellor has less room for manoeuvre after public sector borrowing came in above expectations, at £11.8bn for February. And inflation reached a 28-month high last month, jumping to 4.4 per cent in the consumer price index – considerably above the Bank of England’s two per cent target.