Budget 2012: Chancellor George Osborne 'to reward work'
(39 minutes later)
The chancellor is expected to announce an increase in the amount people can earn before they start paying tax in his Budget later.
George Osborne is delivering his third Budget, beginning it by saying that it was a package "to reward work" and lift "millions of people" out of tax.
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 expected to say that the cuts will be funded by a clampdown on legal tax avoidance and a new 7% rate of stamp duty on homes over £2m.
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.
The threshold at which income tax is paid, due to rise to £8,105 next month, could increase to £9,205 in 2013.
But Labour say the chancellor should be helping ordinary families instead.
The 50p tax rate on earnings over £150,000 could be cut to 45p in 2013.
Mr Osborne will unveil his third Budget in the House of Commons at 1230 GMT.
BBC political editor Nick Robinson said planned cuts to child benefit are also expected to be revised, so they affect fewer families.
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.
Mr Osborne is also delivering the latest forecasts for economic growth and the public finances.
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.
Political backlash
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.
In his last big financial update - the Autumn Statement in November - the chancellor lowered growth forecasts for the UK economy and extended the period of spending cuts by a year to 2016-17.
Mr Osborne has said he wants to do more to help "working people" - those not paying tax at all will not benefit from the change.
But it is thought the outlook is now no worse than it was four months ago and he may be able to nudge up the growth forecast for 2012 - which had been revised down from 2.5% to 0.7%.
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."
And government borrowing for 2011-12 is likely to come in at least £3bn-£5bn below the official forecast of £127bn.
It is unclear how the measure will be paid for or 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.
There has been widespread speculation about the content of the Budget - which Mr Osborne has said will be a "coalition Budget", agreed between the two governing parties.
Some had predicted that government borrowing over the last year could come in lower than previously envisaged - giving Mr Osborne some additional room for manoeuvre.
He risks a political backlash if he reduces or phases out the top rate of tax, introduced by Labour in 2010, which businesses have complained is anti-entrepreneurial and damaging the UK economy and is opposed by some Conservatives.
However, ahead of the Budget, official figures from the Office for National Statistics revealed a rise in borrowing in February to £15.2bn - up from £8.8 billion for the same month in 2011.
Labour has said that to prioritise tax cuts for the wealthiest at a time of austerity shows the government is "out of touch".
The Treasury said that would bring the overall total for 2011-12 closer to the forecast of £127bn.
It is thought the Liberal Democrats, who had warned against cutting the top 50p rate of tax too soon, have demanded other measures to tax the rich.
'On another planet'
Deputy Prime Minister Nick Clegg has said any changes must result in the wealthy "paying more, not less".
In his Commons speech, 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 chancellor has already confirmed that there will be "aggressive" measures against stamp duty avoidance, by people who transfer properties into the ownership of offshore companies, and a more general "anti-avoidance rule" is expected.
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.
Other measures could include reducing tax relief on pension contributions.
Some Lib Dems, however, want it to be retained.
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. It had already been increased by £1,000 to £7,475 last April and a further £630 increase to £8,105 is due next month.
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 coalition is committed to raise it to £10,000 by 2015. It is expected that a change to the higher rate threshold will mean higher earners will not gain from the change.
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%.
"It was distortive and that's something that needed to be corrected."
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.
"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 benefit
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.
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.
But he is expected to confirm that the 3p rise in fuel duty expected in August will go ahead, despite high pump prices.
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%.
Mr Osborne has also been under pressure from some Conservatives to change his policy on child benefit, having announced in 2010 that it would be stopped for families with at least one 40% higher rate tax payer - someone earning more than about £42,000 - from January 2013.
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.
He has said it is important for all sections of society to contribute to cutting the deficit, but has hinted that there may be a change to the way the policy is implemented.
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.
What is your reaction to the Budget? Do you have any questions? Paul Lewis from Radio 4's Money Box will answer a selection of your questions on BBC Two and the BBC News Channel. You can send us your comments and questions using the form below.
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 BBC Two and the BBC News Channel.
