The Budget is set to be a crucial moment for the government
The Budget is set to be a crucial moment for the government
The toughest package of tax increases and spending cuts in a generation is expected to be unveiled by Chancellor George Osborne in his first Budget.
The biggest package of tax increases and spending cuts in a generation will be "tough but fair", Chancellor George Osborne he has told MPs.
Mr Osborne, who will speak from 1230 BST, said it would be "tough but fair", as he seeks to cut the £155bn deficit.
Delivering his Budget he promised not to hide hard choices from people or "bury them in the small print".
Middle-class benefits and public sector pay may be hit but 900,000 low earners will be taken out of the tax system.
But he said action was "unavoidable" to prevent a "catastrophic collapse" in economic confidence.
Labour say the poorest will be hit and say the cuts are ideologically driven.
He is expected to freeze public sector pay, slash welfare benefits and increase taxes, possibly including VAT.
They say the economy is too weak to withstand such a spending squeeze and the move could push the UK back into recession.
The chancellor began by saying: "This emergency Budget deals decisively with our country's record debts."
Speaking ahead of his statement in the Commons at 1230 BST (1130 GMT), Mr Osborne said the coalition government would tackle the deficit "fairly" - the rich would pay the most while children and pensioners would be protected.
But he promised an "enterprise-led recovery" which rewarded work and protected the most vulnerable.
He added: "This is an unavoidable Budget because of the mess we have to clear up. So the coalition government will take responsibility for balancing Britain's books within five years."
He said the UK economy was predicted to expand at a slower rate than predicted by Alistair Darling in his final Labour Budget in March, according to figures from the new Office for Budget Responsibility (OBR).
He also pledged to get "enterprise going" to help create jobs.
The forecast for 2011 is now for 2.6% growth, not 3.25%.
Mr Osborne is fulfilling the Conservatives' pre-election pledge to hold a Budget within 50 days of coming to office.
Mr Osborne - the youngest Chancellor for more than a century - vowed to eliminate Britain's budget deficit within five years, faster than was planned by the previous Labour government.
He has said the Budget will set out necessary plans to bring down borrowing over the next four years and how this will be divided up between spending cuts and tax rises.
The Budget represents a major change of direction for the British economy, overturning Labour's efforts to spend its way out of recession through a "fiscal stimulus".
The government says borrowing levels inherited from Labour - which are set to total £155bn this year - are unsustainable and delaying action will damage market confidence in the UK and store up worse financial problems for the future.
'Tough but fair'
The chancellor is expected to announce a number of revenue-raising measures, including a levy on bank profits, an increase in capital gains tax and rises in cigarette and alcohol duties while a change in aviation tax is also expected.
But Mr Osborne's statement will not include details of which public services face the axe - that will come in October when his spending review is published.
Politics, like comedy, is all about timing. And the calculation in Team Osborne is that now is the time to inflict maximum pain. Why? Well, when is there ever going to be an easier time to dispense hair shirts to all and sundry.
There has been widespread speculation that Mr Osborne will increase VAT to 20% - potentially raising £12bn a year - but according to the Financial Times any increase will be introduced in stages.
The public is braced, the markets are ready, the Opposition is in disarray and the new coalition government still has a favourable media wind behind it. It's a message rammed home to Mr Osborne by former Tory chancellors.
Labour will argue that a VAT increase will hit the poorest people in our society the hardest - pensioners, the unemployed and those who do not pay income tax at all.
History would suggest that inflicting the pain early is always a favoured tactic. Mrs Thatcher did it in 1979 with a doubling of VAT within months of her election victory. And Norman Lamont also hiked taxes straight after John Major's triumph in 1992.
But Mr Osborne is expected to help the low paid by raising personal tax allowances, taking an estimated 880,000 people out of the tax system and also give millions of basic rate taxpayers a tax cut of £200 per year.
It's also a simple fact that all governments want to get the pain over long before they have to go back to the voters in four or five years. So today should be as bad as its going to get. Hopefully.
The plan is the first step towards a key Liberal Democrat coalition demand of taking all those earning less than £10,000 out of tax.
The point at which people start paying tax will rise by £1,000 to £7,475 taking nearly 900,000 people out of the tax system.
But opposition, unions and employer groups have all expressed concerns about the steps being planned amid continuing speculation of a rise in VAT and a freeze on public sector pay beyond the one-year already planned in 2011-2012.
Acting Labour leader Harriet Harman said her party's biggest concern was about jobs.
"People shouldn't be thrown out of work as a result of this Budget. Because if that happens it is not only very unfair on the individual... but it also costs the public purse more and in the end will lead to higher tax increases."
She added: "We do need to get the deficit down, but it mustn't be brought down in a way that pushes the economy back into recession and which costs jobs, because if that happens that will make the deficit worse."
The BBC's Political Editor Nick Robinson said the government's plans to raise personal tax allowances would take an estimated 880,000 people out of the tax system and also give millions of basic rate taxpayers a tax cut of £200 per year.
The plan is the first step towards a key Lib Dem coalition demand of taking all those earning less than £10,000 out of tax.
VAT rise?
The chancellor must find £3.5bn to pay for the giveaway - which will be clawed back from top rate taxpayers - and Labour are likely to argue it is irresponsible in the current climate.
The chancellor must find £3.5bn to pay for the giveaway - which will be clawed back from top rate taxpayers - and Labour are likely to argue it is irresponsible in the current climate.
Nick Robinson said it would be clear from the chancellor's statement that overall, people in all income groups would pay more as a result of other tax rises, spending and benefit cuts and limits to public sector pay and pensions.
He said it was "far from certain" VAT will rise from its current 17.5%.
In an e-mail to Lib Dem members on Monday evening, Deputy Prime Minister Nick Clegg said the budget deficit amounted to a "fiscal bombshell" that had to be dealt with.
'Difficult decisions'
He rejected claims that the Liberal Democrats had "sold out" after they campaigned during the election against early spending cuts due to the fragility of the economic recovery.
"We have always argued that cuts would be necessary, but the timing should be based on economic circumstances, not political dogma," he said. "The economic situation today means that time has come."
He added: "We have taken the difficult decisions with care, and with fairness at their heart. You will see the stamp of our Liberal Democrat values in [the] Budget. But nonetheless, it will be controversial.
"This is one of the hardest things we will ever have to do, but I assure you, the alternative is worse: rising debts, higher interest rates, less growth and fewer opportunities."
Other measures widely forecast to be included in the Budget include a cut in the headline rate of corporation tax, a two-year freeze in council tax and the scrapping of Labour's planned 1% rise in National Insurance contributions paid by employers.
Other measures widely forecast to be included in the Budget include a cut in the headline rate of corporation tax, a two-year freeze in council tax and the scrapping of Labour's planned 1% rise in National Insurance contributions paid by employers.
Unions have said any tax rises must fall predominately on the better-off, while business groups have called for radical reform of public services to avoid across-the-board tax increases.
BBC Political Editor Nick Robinson said people in all income groups were expected to pay more as a result of other tax rises, spending and benefit cuts and limits to public sector pay and pensions.
"This needs to be a bold and ambitious Budget, with a credible pathway for restoring sound public finances and a convincing narrative for growth," the CBI's deputy director general John Cridland said.
In a message last night to Liberal Democrat supporters, Deputy Prime Minister Nick Clegg made clear that his party was fully signed up to the coalition's economic strategy.
He rejected accusations that he had "sold out" to the Conservatives, insisting that the Budget would bear "the stamp of our Liberal Democrat values".
Labour argues that rather than being a necessary response to Britain's massive debts, Mr Osborne's "emergency Budget" is an ideologically driven assault on public spending which risks pushing the UK back into recession.
What do you want to see from the Budget? How do you think it will affect you? You can send us your comments using the form below.
What do you want to see from the Budget? How do you think it will affect you? You can send us your comments using the form below.
