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Budget 2012: Tax allowances set to rise further Budget 2012: Tax allowances set to rise further
(39 minutes later)
George Osborne is set to announce a significant further increase in personal tax allowances in Wednesday's Budget, the BBC understands. The chancellor is expected to announce an increase in the amount people can earn before they start paying tax in his Budget later.
The threshold at which anyone pays income tax is set to increase to £9,205, benefiting millions of people. George Osborne is also set to unveil a cut in the top rate of tax from 50p to 45p, but not for a year.
The chancellor is also expected to announce a cut in the top rate of tax from 50p to 45p, but not for a year. The government insists it is not giving a net tax cut to the rich because money will be clawed back by reducing tax avoidance and raising property taxes.
These measures are set to be paid for by ending tax reliefs and loopholes for the wealthy and raising property taxes. But Labour say the chancellor should be helping ordinary families instead.
Mr Osborne will unveil his third Budget in the House of Commons at 1230 GMT.Mr Osborne will unveil his third Budget in the House of Commons at 1230 GMT.
It is expected to include a tax cut for millions of taxpayers in the form of a further increase in personal tax allowances to more than £9,000. The threshold at which anyone pays income tax is set to increase to over £9,000 next year, which would leave the average standard rate taxpayer £305 a year better off.
The BBC's Political Editor Nick Robinson said this could leave the average taxpayer £305 a year better off.
Ministers lifted the tax threshold by £1,000 to £7,475 in April 2011, meaning the first £7,475 of people's income is not liable for tax.Ministers lifted the tax threshold by £1,000 to £7,475 in April 2011, meaning the first £7,475 of people's income is not liable for tax.
A further £630 increase to £8,105 was due next month and while the coalition has pledged to ultimately raise the threshold to £10,000 by 2015, the Lib Dems have been pushing for "further and faster" action on what is regarded as a flagship policy.A further £630 increase to £8,105 was due next month and while the coalition has pledged to ultimately raise the threshold to £10,000 by 2015, the Lib Dems have been pushing for "further and faster" action on what is regarded as a flagship policy.
Speaking on Tuesday, Deputy Prime Minister Nick Clegg said he wanted the Budget to relieve the tax burden on those on low and average incomes, many of whom were "feeling the pinch and struggling to make ends meet". Mr Osborne has said he wants to do more to help "working people".
The commitment to meet the £10,000 target was "the most radical tax policy in British politics for many years", he said. Business Secretary Vince Cable said: "The Liberal Democrats have pushed very hard to lift low earners out of tax and help hard pressed middle income families and that's our priority, but the Budget has to be judged against the extent to which it contributes to Britain's recovery from this dreadful economic crisis into which we've been plunged."
Mr Osborne has also said he wants to do more to help "working people". It is unclear how the measure will be paid for, when it will come into force, although it is expected that a change to the higher rate threshold will mean higher earners will not gain from the change.
But it is unclear how any further increase will be paid for, when it will come into force, and whether it will apply to all taxpayers or only those paying the basic 20% rate. Economists have said raising the threshold would cost billions. Those not paying tax at all will not benefit from the change.
Economists have said raising the threshold would cost billions, although it could be partly paid for by reducing higher rate tax allowances. Those not paying tax at all will not benefit. 'On another planet'
Other tax changes in the Budget could see the 50p top rate of tax reduced to 45p. Mr Osborne is also likely to announce that the 50p top rate of tax - levied on incomes above £150,000 - will be reduced to 45p.
The BBC's business editor Robert Peston said he expected the announcement but he understood that it would not be implemented for a year. The rate - which was introduced in April 2010 in what Labour said at the time was a temporary move - has been criticised by the business community and many Conservative MPs who say it deters enterprise and investment.
The 50p rate, levied on incomes above £150,000, was introduced in April 2010. Some Lib Dems, however, want it to be retained.
It has been criticised by the business community and many Conservative MPs who say it deters enterprise and investment but some Lib Dems want it to be retained. The chancellor is expected to base any decision on the findings of a review by HM Revenue and Customs review into how much the 50p tax raised last year. The chancellor is expected to base any decision on the findings of a review by HM Revenue and Customs review into how much the 50p tax raised last year.
A range of measures is also expected to clamp down on tax avoidance, estimated to cost the Treasury about £5bn a year. Conservative deputy chairman Michael Fallon told the BBC: "There's a lot of evidence... that people are avoiding it and it was, in the end, the third highest tax rate on the planet if you add the National Insurance at 2%.
Mr Osborne has said the practice of people avoiding stamp duty by buying property through offshore companies is "unacceptable" and will be dealt with "aggressively". "It was distortive and that's something that needed to be corrected."
The Lib Dems have floated the idea of a "tycoon tax" in which the wealthiest people pay a minimum rate of tax on all their earnings by capping allowances and reliefs open to them. But Labour have attacked the move, with shadow Treasury minister Owen Smith saying: "You'd need to be on another planet to think you can have a Budget where we're going to cut taxes for the richest 1% in this country and then plausibly describe that as fair.
Other tax changes affecting the wealthiest in society could see a big rise in stamp duty levied on purchases of properties worth more than £2m. "We think it is absolutely an extraordinary decision being taken at a point when ordinary families... with high inflation, low wages, massive cuts already to tax credits... when those families are feeling the squeeze."
The opposition want a cut in the headline rate of VAT and a one-off bank bonus tax to help get the young unemployed into work and to build more affordable homes.
Child benefitChild benefit
The chancellor will also use Wednesday's speech to update MPs on the latest forecasts for the UK's struggling economy. The cut in the top rate is expected to be offset with a range of steps to clamp down on tax avoidance, estimated to cost the Treasury about £5bn a year.
A new higher rate of stamp duty for properties worth more than £2 million is expected, and measures will be imposed to prevent people avoiding the tax altogether by buying homes through offshore companies.
The Lib Dems have also floated the idea of a "tycoon tax" in which the wealthiest people pay a minimum rate of tax on all their earnings by capping allowances and reliefs open to them.
Other speculation in the run-up to the Budget has centred around possible revisions to child benefit changes due in January.
The benefit was due to be removed from any household with a higher rate taxpayer - someone earning more than about £42,000 - but senior ministers have indicated in recent months they are looking at how to address perceived anomalies in the plans.
One of the most controversial aspects is the fact that a household with just one earner who is a higher rate taxpayer would lose child benefit, while a family with two earners each just under that limit would keep it.
It has also been reported that Mr Osborne could announce the end of national pay rates for some public sector workers while measures to encourage investment in infrastructure and to reduce business red tape are also thought likely.
The chancellor will use Wednesday's speech to update MPs on the latest forecasts for the UK's struggling economy.
In November, the independent Office for Budget Responsibility revised down the rate at which UK economy is expected to grow in 2012 to 0.7%.In November, the independent Office for Budget Responsibility revised down the rate at which UK economy is expected to grow in 2012 to 0.7%.
The economy contracted in the final three months of 2011 and Labour have called for the chancellor to focus on tackling rising unemployment amid fears of a double-dip recession.The economy contracted in the final three months of 2011 and Labour have called for the chancellor to focus on tackling rising unemployment amid fears of a double-dip recession.
The opposition want a cut in the headline rate of VAT and a one-off bank bonus tax to help get the young unemployed into work and to build more affordable homes.
"We want a Budget for jobs and families which is fair," said shadow chancellor Ed Balls.
Economists say government borrowing over the last year could be between £3bn and £10bn lower than previously envisaged, giving Mr Osborne some additional room for manoeuvre.Economists say government borrowing over the last year could be between £3bn and £10bn lower than previously envisaged, giving Mr Osborne some additional room for manoeuvre.
But the chancellor has said he remains firmly committed to austerity measures he says are needed to meet his deficit reduction targets by 2016-7 and crucial to maintaining market confidence in the UK economy.But the chancellor has said he remains firmly committed to austerity measures he says are needed to meet his deficit reduction targets by 2016-7 and crucial to maintaining market confidence in the UK economy.
Other speculation in the run-up to the Budget has centred around possible revisions to child benefit changes due in January. Will you be affected by the tax changes? Send us your comments and experiences using the form below.
Senior ministers have indicated in recent months they are looking at how to address perceived anomalies in plans to withdraw child benefit from families with a higher ratepayer, to ensure some couples are not unfairly penalised.
It has also been reported that Mr Osborne could announce the end of national pay rates for some public sector workers while measures to encourage investment in infrastructure and to reduce business red tape are also thought likely.
What are your hopes and concerns ahead of the Budget? Do you have any questions? Paul Lewis from Radio 4's Money Box will answer a selection of your questions on the BBC News Channel.