Britain's finance minister has cut the rate of income tax for the country's wealthiest citizens but insisted the rich will pay more through a raft of measures to prevent tax avoidance and a hefty new charge on expensive property sales.
In his annual budget statement on Wednesday, George Osborne said he was cutting the top rate from 50 per cent to 45 per cent by April next year on incomes over STG150,000 ($A228,000)a year. He argued that the original higher rate did not yield as much as expected, partly because the rich were able to avoid the tax.
Osborne sought to deflect criticism that any largesse was confined to the wealthy by announcing a big hike in the level Britons start paying tax to STG9,205. There are doubts, however, as to whether the poorest in British society will reap the full reward, given they may lose some benefits.
'Together, the British people will share in the effort and share the rewards,' Osborne said at the conclusion of his hour-long statement. 'This country borrowed its way into trouble, now we're going to earn our way out.'
The 50 per cent tax rate was introduced by the previous Labour government in response to the sharp deterioration in public finances in the wake of a banking crisis that led to the country's deepest recession since World War II.
The leader of the Labour opposition Ed Miliband pounced on Osborne's decision to cut the top rate of tax, mocking him for his oft-repeated mantra that 'we're all in this together.'
'After today's budget, millions will be paying more while millionaires pay less,' Miliband said.
Osborne insisted that the rich should pay a bigger proportion of their income than the poor and said he was offsetting the cut in the top rate by other taxes on wealth, including a new seven per cent charge on the sale of houses valued over STG2 million, up from five per cent.
Most of those residences are located in London, which has become a second home of choice for many of the world's super-rich - Russian oligarchs and hedge fund managers have all converged on the capital, driving up the cost of homes to levels that are unaffordable to the vast majority of Londoners.
Tony Ryland, a senior tax partner at London Chartered Accountants Blick Rothenberg, said the changes will have 'a major effect on the London housing market, potentially driving away overseas buyers.'
Overall, the budget measures were broadly neutral. Osborne has little room for manoeuvre, given the government's primary plan to dramatically reduce borrowing and recent warnings from credit ratings agencies that they could cut the country's cherished triple-A rating if public finances don't improve.
The government's debt-reduction program has been rewarded in the money markets to an extent, even though the economy has flatlined and unemployment stands at a near 17-year high. Unlike other big borrowers in Europe, such as Greece and even Italy, Britain - the biggest European economy that does not use the euro - has enjoyed super-low borrowing rates, making the deficit easy to finance.
Osborne said he was asking the Treasury to examine whether it would be wise for Britain to start issuing bonds of duration longer than 50 years to lock in the current historic low interest rates. The yield on Britain's ten-year bond is around 2.3 per cent, in line with the equivalent US rate.
Economic growth this year will be 0.8 per cent, up from a previous forecast for 0.7 per cent, according to the Office for Budget Responsibility, an independent agency tasked by the government to compile projections.
Osborne said Britain was likely to avoid a technical recession, officially defined as two consecutive quarters of negative growth. In the last three months of 2011, Britain contracted by a quarterly rate of 0.2 per cent.
In 2013, Osborne said Britain's economy would likely grow two per cent, slightly lower than the previous forecast of 2.1 per cent. The projected growth rates remain below the long-run average of 2.5 per cent.
Meanwhile, the budget deficit in the current fiscal year, which ends March 31, will be STG126 billion, STG1 billion less than expected. As a percentage of GDP, debt will peak at 76.3 per cent in 2014-15, lower than previously thought.
source: http://www.skynews.com.au/world/article.aspx?id=731491&vId=3139065&cId=World
