Pre-election budget takes aim at the rich
Chancellor Alistair Darling has vowed to hike taxes on the rich to help the poor hit by the global downturn, and to cut borrowing targets in a budget unveiled weeks before a knife-edge election.
Unveiling his last budget ahead of a general election expected on May 6, Darling warned growth would be weaker than expected in 2011 as Britain recovers from a record recession.
Opinion polls suggest that the election will be a tight contest between the ruling Labour Party and the main opposition Conservatives.
"Those who have benefited the most from the strong growth in incomes in past years should now pay their fair share of tax," Darling said.
"Looking across all the tax rises since the beginning of this global crisis, 60 percent of them will be paid for by the top five percent of earners."
Darling revealed that £2 billion raised from a supertax on bankers' bonuses would be ploughed into a programme to help boost recovery.
This £2.5 billion "growth package" would "help small business, promote innovation, invest in national infrastructure", Darling told parliament.
But economists played down its importance.
"As the headline £2.5 billion package is worth just 0.2 percent of GDP, it will not have a significant impact on the economic outlook," said Daiwa economist Colin Ellis.
"Instead, it seems designed to put some clear water between the Labour government and Tory opposition ahead of the expected election in May, allowing the government to paint itself as investing in the recovery rather than cutting too sharply and risking a double dip."
There was more bad news for high earners, who already face a 50-percent income tax rate on earnings over £150,000 this year.
Britons with annual incomes in excess of £100,000 would have their annual tax-free allowance gradually withdrawn, said Darling.
But economists argue that further tax hikes and spending cuts will eventually be needed to fix the public purse, which has been hit by banking bailouts and recession-hit taxation revenues.
In a measure aimed at helping first-time property buyers struggling to get on the housing ladder, Darling said people buying a property would not have to pay tax on properties costing less than £250,000.
That was double the previous ceiling.
The new measure would be paid for by increasing tax payments on properties costing more than £1 million, he said.
The chancellor also announced measures to allow more of Britain's poorest people access to basic bank account facilities. According to Treasury figures, 1.75 million adults do not yet have them.
The chancellor cut his economic growth forecast for 2011 to 3.0-3.5 percent but held his prediction of 1.0-1.5 percent expansion this year.
He also trimmed his official borrowing target to £167 billion for the current financial year, which runs until the end of this month.
That was equivalent to 11.8 percent of GDP but was lower than the previous estimate of £178 billion.
In a vitriolic response to the budget, Conservative leader David Cameron lashed out at the government for having helped guide Britain into the worst economic downturn in modern history.
"It is time this country had a radical change of direction," he added.
Some newspapers saw the budget as manoeuvring ahead of the election: the Times labelled it "breathtakingly political."
"The chancellor delivered a skilful political budget yesterday. But this was a time for sound economics, not for playing politics," said the paper.
The Daily Mail said the change to property taxes was a "clear pre-election bribe just weeks before Gordon Brown goes to the country."
While accepting the budget was political, the Guardian said Darling had reminded voters of "the government's largely admirable record over the past two turbulent years in terms of trust and competence.
"That was a smart move for a chancellor without many options."
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