21 March 2012 Last updated at 13:53 ET

Budget 2012: George Osborne cuts 50p top tax rate

 

George Osborne: "The 50p tax rate has caused massive distortions"

George Osborne is cutting the tax rate for earnings over £150,000, saying in his Budget it raised "next to nothing".

He is also going to raise the threshold at which people start paying tax to £9,205, leaving millions of working people over £200 better off.

But 4.4 million pensioners will be worse off next year when age-related tax allowances are frozen and axed.

Mr Osborne said the Budget "rewards work" but Labour Leader Ed Miliband labelled it a "millionaire's Budget".

BBC political editor Nick Robinson said the chancellor had taken a huge gamble with changes that might not shape the economy, but would shape politics in the months ahead.

Other key measures outlined by Mr Osborne were:

• Corporation tax to fall from 26% to 24% in April 2012, down to 22% in 2014
• New 7% stamp duty rate for properties worth more than £2m and a 15% rate for £2m homes bought through companies
• Child benefit cuts to be phased in for families with at least one parent earning £50,000, and axed for those on £60,000
• UK growth forecast raised slightly to 0.8% and borrowing to be £1bn less than previously forecast
• Tobacco duties to rise by 5% above inflation from 1800 GMT - equivalent to 37p on the price of a packet of cigarettes.
• Fuel duty rise of 3p a litre to go ahead as planned
• State pension age to be automatically reviewed, to ensure it keeps pace with life expectancy.
• VAT loopholes - from hot food bought in supermarkets to static caravans and sports nutrition drinks - to be closed.

Delivering his third Budget, he said: "This Budget supports working families and helps those looking for work.

"It unashamedly backs business. And it is on the side of aspiration: those who want to do better for themselves and for their families."

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He defended the decision to cut the top rate of tax by saying five times as much would be raised from the wealthiest by other tax and anti-avoidance measures being brought in.

He said the rate was the highest among G20 countries and damaged competitiveness.

A report into the highest rate, introduced by Labour in 2010, had found it had raised just a third of the £3bn initially predicted, Mr Osborne said.

"No chancellor can justify a tax rate that damages our economy and raises next to nothing."

'Granny tax'

He said a further £1,100 rise in the threshold at which income tax is paid from next year would benefit "every working person on low or middle incomes" and amounted to an extra £220 a year each - or £170 after inflation.

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Tax allowances are currently more generous for the over-65s - at £10,500 up to age 74 and £10,660 after that.

But they will be frozen, and stopped for anyone turning 65 after 5 April 2013, meaning 4.41 million people will be worse off, by an average of £83, in real terms in 2013-14.

Mr Osborne said it would simplify allowances and no pensioner would lose out "in cash terms". He pointed to next month's "biggest cash increase in the state pension ever" of £5.30 a week.

But the unions said pensioners were "paying the price for a pro-rich Budget".

TUC general secretary Brendan Barber said the chancellor's decision would "come back to haunt him" and was "already being dubbed 'the granny tax'".

HM Revenue and Customs figures also show that 300,000 people will be drawn into paying the 40% higher rate tax from 2013-14 because of a reduction in the threshold to £41,450.

A new 7% rate of stamp duty would be charged on properties worth more than £2m - and anyone trying to buy a £2m home through a company would face a punitive 15% stamp duty rate.

Child benefit had been due to be removed from all families with at least one parent paying the higher, 40% rate, of income tax - about £43,000 - from January 2013.

But Mr Osborne said he wanted to avoid a "cliff edge" effect - so it would now only be withdrawn when someone in a household earned more than £50,000, at a rate of 1% of the benefit for every £100 up until £60,000, when it would be cut entirely.

It meant 750,000 more households would not now lose all their child benefit.

Corporation tax

He said corporation tax would be cut more than expected from next month, to 24% rather than 25% as planned, falling to 22% by 2014, something he said would be "an advertisement for investment and jobs in Britain".

BUDGET AT A GLANCE

• Increase in personal tax allowances - the amount of income that is tax free - to £9,205 in April 2013
• Top rate of tax reduced from 50p to 45p in April 2013
• Measures to clamp down on tax avoidance
• Rise in stamp duty to 7% for sales of houses worth £2m
• Corporation tax to fall to 24% next month - 22% by 2014

• Budget: Key points at a glance
• Q&A: What's in it for you?
• Labour: Budget 'for millionaires'
• Analysis: Sticking to plan A

Mr Osborne also announced there would be limits on uncapped tax reliefs.

In his last big financial update - the Autumn Statement in November - the chancellor lowered growth forecasts for the UK economy and extended the period of spending cuts by a year to 2016-17.

But he was able to nudge up the growth forecast for 2012 - which had been revised down from 2.5% to 0.7% - to 0.8% and said he was "on course" to eliminate the structural deficit by 2016-7.

He also said the Independent Office for Budget Responsibility expected the UK would avoid a "technical recession" - but that the eurozone crisis and a spike in oil prices continued to pose risks.

Labour Leader Ed Miliband labelled it a "millionaire's budget".

"Tax credits cut, child benefit taken away, fuel duty rising - and what has he chosen to make his priorities?

"For Britain's millionaires, a massive income tax cut each and every year."

Deputy Prime Minister and Lib Dem leader Nick Clegg described it as a Budget "every liberal can be proud of".

John Cridland, director general of the Confederation of British Industry, said: "Family budgets have been under great pressure, and by putting more money in the pockets of ordinary people, the chancellor has provided a much-needed confidence boost."