Chancellor slashes top rate of income tax

Chancellor of the Exchequer George Osborne on Wednesday used his annual budget to cut the top rate of income tax while pledging an "unwavering commitment" to slashing debt.

Osborne said Britain remained on course to virtually wipe out its budget deficit by 2017 as the government seeks to preserve its top credit rating.

Osborne outlined plans to slash the top rate of income tax from 50 percent to 45 percent, arguing he would collect five times more cash per year from the wealthy via new property taxes and a clampdown on tax avoidance.

The British economy would meanwhile grow slightly better than expected this year, by 0.8 percent rather than the previous forecast of 0.7 percent.

Osborne He also predicted that Britain would avoid recession this year despite an economic downturn for the neighbouring eurozone, adding that the government would borrow slightly less than expected in the fiscal year to April 2012.

"This budget reaffirms our unwavering commitment to deal with Britain's record debts," Osborne told lawmakers.

"But because we've already taken difficult decisions this can also be a reforming budget that seeks to repair the disastrous model of economic growth that created those debts."

The Conservative-Liberal Democrat government will cut corporation tax on company profits to 24 percent from 26 percent, starting next month, rather than to 25 percent as announced last year. By 2014, it will stand at 22 percent.

Osborne described the lowering of corporation tax as "an advertisement for investment and jobs in Britain".

He also raised the point at which workers begin to pay income tax to ?9,205, in order to take 840,000 individuals out of the income tax net, as part of the coalition's agreement to eventually lift the personal allowance to ?10,000.

However, the leader of the opposition Labour party, Ed Miliband, slammed the decision to cut the top rate, labelling Osborne's latest fiscal plans "a millionaire's budget that squeezes the middle."

Miliband also accused Osborne of announcing a "tax rise for pensioners" via new budget measures that are aimed at simplifying the tax system.

At the moment, people over the age of 65 are not taxed on the first ?10,500 of their income, but this will be frozen for existing pensioners and from next April new pensioners will have a tax-free allowance of ?9,205.

The Chancellor said he was cutting the top rate of income tax that is levied on individuals' earnings above ?150,000 (180,000 euros, $238,000) per year, adding that the current level of 50 percent was damaging the economy. The new rate comes into force in April 2013.

The previous Labour government had raised the top rate from 40 percent to 50 percent in the wake of the devastating global financial crisis.

Osborne, presenting his third austerity budget in a row, had reportedly faced fierce pressure from the right wing of his Conservative Party and from business leaders to slash the top rate to help stimulate economic growth.

The British government has implemented huge public spending cuts and tax rises to slash a record deficit inherited from Labour in 2010.

The coalition is also eager to preserve Britain's valuable AAA credit rating, that keeps state borrowing costs low, and avoid a Greek-style sovereign debt crisis.

Fitch Ratings said Wednesday that the budget and latest forecasts would not impact its assessment of Britain's top-level AAA credit rating, but added that the economy remained vulnerable to adverse shocks.

net borrowing is predicted to reach ?126 billion Britain was set to borrow slightly less than expected this year as a result of government austerity measures, Osborne added on Wednesday.

Public sector net borrowing is predicted to reach ?126 billion ($200 billion, 151 billion euros) in the current 2011/2012 financial year ending in April.

The new forecast, provided by the Office for Budget Responsibility, marked a slight improvement from the previous estimate of ?127 billion.

Borrowing is then forecast to drop to ?120 billion in 2012/2013, before falling to ?98 billion in 2013/2014.

Financial markets gave a muted response to the budget as much of its content had unusually been leaked to media after some very public wrangling between the coalition partners.

"The currency market is trading as if the budget never happened," said CurrenciesDirect analyst Alistair Cotton.

"All of the big-ticket items were leaked and reflected in the rates beforehand, so even announcements such as corporation tax reductions had much less impact than normal."

Source: http://news.yahoo.com/chancellor-cut-top-income-tax-rate-45-133550912.html

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