■ Osborne will announce £1,000 increase in income tax threshold
■ Banks braced for levy to raise over £3bn – more than first expected
■ Basic rate payers to get £200 tax break but higher rate payers lose out
■ Chancellor to say richest will bear brunt of deficit reduction measures
GEORGE Osborne will today unveil plans to take 850,000 of the poorest workers out of income tax altogether, in a “tough but fair” Budget that will hurt the rich the most.
The chancellor will raise the personal income tax allowance by £1,000, handing basic rate payers a £200 tax break at a cost to the exchequer of £3.7bn. Higher rate payers will see their income tax thresholds lowered to ensure they do not benefit.
Aides to Osborne said he had “learned lessons from the past” when the poorest were “hit hardest” by spending cuts. Today, the Treasury will publish figures showing the rich are set to bear the brunt of the deficit-busting measures.
“The Budget is tough but it’s also going to be fair. We’re dealing with the debts to pay for a private sector recovery,” one aide said.
“Normally it’s the poorest that pay – but we’ve avoided that.”
The chancellor will also announce he is raising the threshold at which employers begin paying National Insurance contributions, meaning they will pay none at all for an extra 650,000 workers.
But banks are bracing themselves for a new balance sheet levy that is expected to raise over £3bn – far more than the £1bn that was originally mooted.
And the chancellor will unveil plans to increase capital gains tax on “non-business assets”, despite several high profile campaigns against the hike, including one in this newspaper. Aides say there will be “generous allowances” to encourage enterprise, however.
Osborne had been widely expected to raise VAT today, although it was last night unclear whether he would go through with the hike.
Treasury officials said the chancellor was sticking to his “rule of thumb” that dictates the deficit should be reduced with four parts spending cuts and one part tax hikes.
But he will say he has no plans to cut capital spending on roads and infrastructure, which was already slashed by the previous Labour government.
Last night, Liberal Democrat leader Nick Clegg wrote to activists to insist the Budget would be fair, amid concerns the party faithful are scared they will be blamed for massive spending cuts.
“The Labour party will say that these decisions are not justified. They will say the Budget creates risks for our economy and that Liberal Democrats have sold out,” he wrote in an email.
“Every time you hear Labour say that, ask why they covered up the details of the £44bn of cuts they themselves had planned.”
A source close to Clegg said the party would welcome the hike in CGT and higher income tax thresholds – both policies masterminded by business secretary Vince Cable.
“We fought hard for these measures – they wouldn’t be there if we hadn’t,” an aide to Clegg said.
Labour will paint the Conservatives as ideologically-driven cutters, while claiming the Lib Dems have become spineless coalition partners that are powerless to stop Osborne swinging the axe.
But aides to Prime Minister David Cameron said they thought the attacks would gain little traction. “We’ve got no opposition to speak of – we need to get the bad news out of the way,” said one Downing Street insider.