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.

Alcohol & cigarettes

Estimate how much beer, wine, spirits and cigarettes you would consume in a normal week.

You will be about £0 better off in 2012/13

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

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."

 

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  • Comment number 795.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    -5

    Comment number 794.

    I don't think people acknowledge the severity of the economic situation in Britain. I understand that people are predominantly concerned with their own well being first and rightly so, but you have to consider the long term effects. Whether we like it or not, If we tax them too highly, they leave, and then who would pay the higher rates of tax to sustain the economy? Tell me that. Get realistic.

  • rate this
    +2

    Comment number 793.

    No wonder Nick Clegg always looks about ready to burst into tears.

  • rate this
    -2

    Comment number 792.

    773 Maxone....If you take the evidence you have to them I am sure they would be glad to start court proceedings.

    784 Gary the figure was based on a report by HMRC and endorsed by OBR both of which are impartial.

    783 those of us who dont vote had the biggest majority in the last election shame we get no recognition

  • rate this
    +2

    Comment number 791.

    773. Maxone

    fair point, don't forget though, this is the country where the Ministry of Justice cannot be bothered to collect billions of £'s in unpaid fines. (http://www.bbc.co.uk/news/uk-politics-17438873)

  • rate this
    -2

    Comment number 790.

    Mike 776:
    Yes, im quite aware of what progressive taxation means.
    My point is, fundamentally, its actually quite stupid.
    But if we accept that's the situation: Removing the 50% tax rate (and bring in more money in the process...) isn't giving to the rich - its taking less from people than they were already giving above what is 'fair' (read: %).

  • rate this
    0

    Comment number 789.

    its not about punishing the rich its about helping the poor, if a tax cut for the rich increases tax revenue the so be it, JFK figured this out why to we over the other side of the Atlantic struggle with this concept.

  • rate this
    +2

    Comment number 788.

    Sorry if I seem dim but. I have to budget to live and have a fixed income that is being cut by inflation. Every time petrol goes up I have to pay more. But as a government they receive more into their coffers so it seems to me the chancellor should be renamed to the chancer

  • rate this
    +2

    Comment number 787.

    @770. Daywalker: which state-employed doctor/nurse/teacher gets paid more than "anyone" private sector? Arrangements previously agreed seem fine - but I guess a business-worshipping government shouldn't be expected to understand the value of a contract.

    @772. ibwa: Perhaps Scrooge envies both Cratchit and Gates because only Scrooge can be sure that he won't be taking his sort of wealth with him.

  • rate this
    +4

    Comment number 786.

    We really are going back to a master and servant culture in Britain. Its just so sad to see working people strategically divided by the elite, covetously and jealously fighting over the crumbs that fall from the top table. Our lack of dignity and agency for positive change is internationally embarrassing.

  • rate this
    -6

    Comment number 785.

    But you Jealous lefties either want to take the richer classes to the cleaners or kick them out
    You should be embarrassed by your greedy selfish self deserving attitude.

  • rate this
    +3

    Comment number 784.

    Channel 4 News reported two days ago that no one knows how much was raised by the 50p tax rate because those who paid it hit their true incomes so Osborne et al are not telling the truth when they claim to know it raised 'next to nothing'

  • rate this
    0

    Comment number 783.

    We could bang on all night about: Tories/Labour/lefties/righties/blah/blah/blah.
    It's all just a sideshow.
    It has been this way for a VERY long time.
    For those who need proof;
    http://kevboyle.blogspot.co.uk/2011/04/governor-boe-democratic-system-is-fraud.html

    Now, assuming you peeked at the link, the only obvious options are;
    i) DO NOT VOTE FOR ANYBODY EVER or
    ii) continue to be abused.

  • rate this
    -3

    Comment number 782.

    I doubt I will ever pay top rate tax but I think all the rich haters need to have a reality check and read this: http://www.bbc.co.uk/news/business-17397199
    The top 10% of earners in the UK contribute over 55% of income tax alone, whereas the bottom 50% only contribute 11%. Fair?
    Bankers aside, generally higher rate payers are some of the hardest working most intelligent assets to our economy.

  • rate this
    +3

    Comment number 781.

    @771 "Cuts in corporation tax and the highest rate income tax. Message is clear - rich people, come to Britain and build your businesses, get even richer."

    Yes let them come and create some jobs, I'm be happy if I could get a job, I'd be over the moon to take £2.50 per hour home, but no one will have me. With a PhD I'm over qualified for most jobs and the technical jobs don't exist

  • rate this
    +2

    Comment number 780.

    I don't understand why anyone earning £40,000 needs any child benefit. £40,000 is an excellent salary. If you can't get by on that there's something very wrong with your spending behaviour. You need to re-evaluate your aspirations before you come looking in my wallet.

  • rate this
    0

    Comment number 779.

    771. The Bladesman....Its a gamble if it brings in more tax it will be used as a tool for the next election if it fails Labour will use it as a tool in the next election.

    Same with the NHS to many of us we view it as political suicide.

    Cant understand why the gamblers have introduced taxes on gambling in the same budget though

  • rate this
    +2

    Comment number 778.

    Without reducing the fuel duty, the rest is pointless, except for the well off! Pensioners and the lower paid, along with people on benefits, are now being attacked from all sides. We will lose out on pensions and the pittance we get will all vanish in price rises and the cost in running a car! Something that is essential in rural areas. I am disgusted and will now vote UKIP, as will my friends.

  • rate this
    0

    Comment number 777.

    Well alot of people on here seem very aggrieved by this budget, but like 99% of cowardly brits you with do nothing except moan and whine. You make me sick with your cowardly inaction

  • rate this
    +2

    Comment number 776.

    "i find it quite bizarre that tax % should go up with income.
    It is a %. Crazy, huh?
    But, hey, if you earn more than X, you pay more %, than someone earning less than X. Fine."

    Good grief people...the tax system is PROGRESSIVE. The 50% rate is paid on the ADDITIONAL income above 150,000 not the person's whole income. Half the commenters on here just don't seem to get this!

 

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