Britain's top financial official cut the tax rate of the country’s biggest earners in the annual budget released yesterday, prompting sharp condemnation of “a millionaire’s budget” from the opposition Labour party.
Chancellor of the Exchequer George Osborne reduced the income tax rate of those who earn more than £150,000 ($237,000) a year from 50 percent to 45 percent. The previous Labour government had introduced the tax, arguing that squeezing the rich was a fair way of paying for Britain’s services.
The Conservative-led coalition did strive to appear even-handed, though. It increased the amount a person is able to earn without paying income tax by £1,100 ($1,738), bringing it to £9,205 ($14,500) – a move that is estimated to excuse an additional 840,000 people from paying tax altogether.
Taxation was the main focus of Osborne’s budget this year, following deep spending cuts in the previous budget that slashed welfare benefits and government spending across a number of departments. The government’s core objective is erasing a huge budget deficit that topped more than 11 percent of GDP when the Conservative-Liberal Democrat coalition came to power in 2010.
Osborne's budget also includes new ways of prying money from the wealthy, including a new 7 percent “stamp duty” levied on buyers of properties worth more than £2 million ($3.16 million).
A director of a small business in London who did not want to be named said while the new stamp duty would affect only what he considered the “super rich,” the cut in the highest rate of income tax would cheer many people who considered themselves middle class.
He estimated that the cut would save him £2,450 a year. Many foreigners find Britain's high taxes off-putting and high-earning Brits are often keen to work in countries like the United States, “where there’s so much more encouragement of wealth creation.”
Osborne was keen to stress that the richest would still be paying up, despite the income tax drop.
"We'll be getting five times more money each and every year from the wealthiest in our society," he said, in a statement read to parliament.
'Tax grab on Grannies'
The biggest single money-making measure in his budget, however, is a freeze on tax allowances for pensioners. Freezing these will swell the government’s coffers by around £1 billion ($1.58 billion) by 2016 – but the move was swiftly criticized by Labor, which said it was a “tax grab on grannies.”
Saga, a company that provides services including holidays for people older than 50, described the move as “an outrageous assault on decent middle-class pensioners.” It said 4.4 million people older than 65 would lose £83 ($131) a year.
Some analysts, however, have noted that although the freeze is unpopular, it brings pensioners, who have so far suffered little from the extensive welfare cuts that have hit most of the populace, into line with other taxpayers.
There was good news for families: the cut-off salary point for those receiving “child benefit” – a weekly handout given to families with children – was raised from an originally planned and controversial £42,475 ($67,110) to £60,000 ($94,800).
Business also got a leg-up with a 2 percent cut to corporate tax, bringing it to 22 percent – described by Osborne as “an advertisement for investment and jobs in Britain.”
GlaxoSmithKline, a pharmaceuticals maker, announced Thursday plans to build its first factory in Britain in 40 years, at a cost of 350 million pounds ($553 million) – a direct result of the cut in corporation tax.
Speaking more generally of the economic outlook, the chancellor said that Britain was on track to avoid sliding back into recession and that while growth this year would be modest, it would pick up the year after.
The Office for Budget Responsibility said the economy had a “little more momentum” this year and revised its growth forecast from 0.7 percent to 0.8 percent in 2012 and 3 percent in 2015.
This morning, however, there was less good news: all-important retail sales fell by 0.8 percent in February, twice the drop expected, according to the Office for National Statistics.
The austerity drive would continue, Osborne warned yesterday. “This country borrowed its way into trouble. Now we’re going to earn our way out”, he said.