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Budget 'tough but fair' - Osborne Osborne increases VAT rate to 20%
(40 minutes later)
The Budget is set to be a crucial moment for the governmentThe Budget is set to be a crucial moment for the government
The biggest package of tax increases and spending cuts in a generation will be "tough but fair", Chancellor George Osborne he has told MPs. VAT is to rise from 17.5% to 20% in January as George Osborne unveiled the biggest package of tax increases and spending cuts in a generation.
Delivering his Budget he promised not to hide hard choices from people or "bury them in the small print". He said his "tough but fair" Budget was "unavoidable" although he told MPs in the Commons there would be no extra tax on alcohol, tobacco and fuel.
But he said action was "unavoidable" to prevent a "catastrophic collapse" in economic confidence. Child benefit will be frozen for three years and there would be cuts to family tax credits and housing benefits.
He is expected to freeze public sector pay, slash welfare benefits and increase taxes, possibly including VAT. And there will be a two year pay freeze for public servants paid over £21,000.
The chancellor began by saying: "This emergency Budget deals decisively with our country's record debts." Mr Osborne said Britain's record budget deficit would be eliminated within five years - faster than the previous Labour government was planning.
But he promised an "enterprise-led recovery" which rewarded work and protected the most vulnerable. He said such action was needed to prevent a "catastrophic collapse" in economic confidence but he stressed it would be done in a "fair" way with the better-off shouldering most of the burden.
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). "Everyone will pay something but the people at the bottom of the income scale will pay proportionately less than those at the top. This is a progressive Budget," he said to jeers from Labour MPs.
Housing benefit will be reformed with a maximum limit of £400 a week, in a package saving £1.8bn a year by the end of the Parliament.
Other benefits to be cut include the health in pregnancy grant while the Sure Start maternity grant will be restricted to the first child only and lone parents will be expected to look for work when their youngest child goes to school.
But there will be an extra £150 a year for the poorest families, through changes to family tax credits to ensure, Mr Osborne said, child poverty reduction targets would be met.
The government is also to introduce a medical assessment for Disability Living Allowance from 2013 for new and existing claimants.
From January 2011, the Government will introduce a bank levy, which will apply to the balance sheets of UK banks and building societies and the UK operations of foreign banks. Mr Osborne said the move would raise £2bn a year once it was fully in place.
Mr Osborne said public sector workers paid more than £21,000 a year would have a two year pay freeze with those paid less getting a flat pay increase of £250 for the next two years.
He said government departments - excluding health and international development would be cut by 25% over four years, with the full details to be set out on 20 October.
Mr Osborne also froze the Civil List payments to the Royal Family at £7.9m a year and said in future years they would be subject to scrutiny by the National Audit Office.
Mr Osborne began by promising an "enterprise-led recovery" which rewarded work and protected the most vulnerable.
But 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).
The forecast for 2011 is now for 2.6% growth, not 3.25%.The forecast for 2011 is now for 2.6% growth, not 3.25%.
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.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.
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".
'Tough but fair''Tough but fair'
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. The Budget represents a major change of direction for the British economy, ending Labour's efforts to spend its way out of recession through a "fiscal stimulus".
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. Labour will argue that the VAT increase would hit the poorest people in society the hardest - pensioners, the unemployed and those who do not pay income tax at all.
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. Mr Osborne's measure to help the low paid by raising personal tax allowances, taking an estimated 880,000 people out of the tax system and give millions of basic rate taxpayers a tax cut of £200 per year.
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.
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 plan is the first step towards a key Liberal Democrat coalition demand of taking all those earning less than £10,000 out of tax.
'Sold out'
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.
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.
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.
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.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".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.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.