British finance minister George Osborne delivered an annual budget on Wednesday which he said would help the poor, stimulate growth and erase the deficit within five years.
But he admitted the fiscal pain will continue for the people of Britain with unprecedented spending cuts and tax increases, to reduce the UK’s sky-high debts.
Osborne, who has had to extend the government’s tough austerity measures through to 2017 because of the weakness of the UK economy, also talked tough to make sure the UK does not lose its prized triple A credit rating.
He said: “We must stick to the course so that there will be no deficit-funded giveaways today. But because we have taken difficult decisions, nor do we need to tighten further. Over the five-year period, this is a fiscally neutral budget, and this is achieved through a modest reduction in both taxation and spending.”
The poorest Britons will be able to earn more before they start paying tax. The threshold was raised to 9,205 pounds (11,050 euros). That was seen as a concession to the more left-wing Liberal Democrats, the junior partner in the coalition government.
However, controversially higher earners will pay less income tax; the top rate has been cut from 50 percent to 45 percent for those earning more than 150,000 pounds (180,000 euros).
The centre-right Conservatives in the ruling coalition have said the 50 percent rate is a barrier to aspiration and entrepreneurship. The Labour opposition party responded that it was a fair way to spread the pain.
In a move to stimulate growth, corporate tax will also be reduced faster and further than announced so far. It will be cut to 24 percent from April, and two further cuts are planned for 2013 and 2014 to bring the rate down to 22 percent.
The shortfall in government income will come from increased levies on banks and on sales of properties worth more than two million pounds (2.4 million euros). So-called stamp duty, which is paid to the government at the time of the sale will rise to seven percent in what is being referred to in the media as a ‘Mansion Tax’.
During his budget speech Osborne said Britain’s economy was set to avoid a renewed recession and growth is expected to pick to a 3.0 percent rate by 2015, but many economists believe that is optimistic.