Britain cuts income tax in political austerity rejig

LONDON - Reuters

George Osborne holds up the Budget Box as he leaves 11 Downing street in central London on March 21, 2012 to present the annual budget to parliament. AFP photo

British finance minister George Osborne cut personal income taxes but aimed new levies on the wealthy yesterday, taking a political gamble while pledging to stick to his government’s tough austerity plan.

He also said that Britain’s economy was improving, although growth is set to remain very modest this year.

In a move that will please his own Conservative party, he cut a 50 percent income tax band for the highest earners to 45 percent, from next year on. The Conservatives say that high a levy is a barrier to aspiration. The Labour opposition say it isa fair way to spread the pain.

In a nod to the Liberal Democrats, the junior coalition partner, Osborne raised the income tax threshold by more than previously announced to 9,205 pounds ($14,300), taking more poorly paid people out of the tax net.

Osborne also introduced a new 7 percent stamp duty rate on sales of property worth more than 2 million pounds. But he cut corporation tax 2 pence to 24 pence in April.

‘More cash from rich’

“We will be getting five times more money each and every year from the wealthiest in our society,” he said, in a statement opponents are likely to challenge.

Mindful of the risk that heavily indebted Britain could lose its prized top-notch credit rating, Osborne said there was no

room to soften the plan of unprecedented spending cuts and tax increases, aimed at reducing sky-high debts.

A shock jump in public sector borrowing to a new record in February, released ahead of the budget statement, provided a stark reminder that the chancellor of the exchequer had no money to provide the fragile economy with a significant boost.

“This budget reaffirms our unwavering commitment to deal with Britain’s record debts,” Osborne said in his budget speech to parliament.

Despite the ongoing risks from the euro zone debt crisis, Britain’s economy was set to avoid a renewed recession and growth is expected to pick up in coming years, Osborne said.

The coalition government of Conservatives and Liberal Democrats also remained on track to meet its fiscal targets to erase the budget deficit - which topped 11 percent before it took office - within the next five years.

In November, the ongoing economic weakness had forced Osborne to to add two more years of austerity after the 2015 election and pointing to a much slower recovery than they expected when they took power in 2010.

Ratings agencies have warned Britain that it could be downgraded, with apparently only Osborne’s unwavering determination to cut the deficit keeping them onside for now.

Britain has been hit hard by the 2007-2009 financial crisis and had to spend tens of billions to bailout major banks.