U.K. cuts tax rate on country's wealthiest citizens to 45% from 50%; finance minister says new 7% duty on sale of houses valued at more than £2M will make up shortfall
March 21, 2012
– Britain's finance minister has cut the rate of tax the country's wealthiest citizens will pay but insisted the rich will pay more through a raft of tax avoidance measures and a punitive new charge on expensive property sales.
In his annual budget statement Wednesday, George Osborne said he was cutting the top rate from 50 pence in the pound to 45 pence by April next year, and argued that the original higher rate did not yield as much as expected — partly because the rich were able to avoid tax.
Osborne also sought to deflect any criticism that any largesse was confined to the wealthy by announcing a big hike in the level that individuals start paying tax to 9,205 pounds ($14,500).
"Together the British people will share in the effort and share the rewards," Osborne said at the conclusion of his hour-long statement.
The 50 pence tax rate was introduced by the previous Labour government in response to the sharp deterioration in the country's public finances in the wake of a banking crisis that led to the country's deepest recession since World War II.
Osborne insisted that the rich should pay a bigger proportion of their income than the poor and said he was offsetting the cut in the top rate by other taxes on wealth, including a new 7 percent stamp duty on the sale of houses valued over 2 million pounds.
Most of those are primarily located in London, which has been the favored second home of choice for many of the world's super-rich — many Russian oligarchs and hedge fund managers have all converged on the capital, driving up the cost of homes to levels that are unaffordable to the vast majority of Londoners.
Overall, the budget measures were broadly neutral — Osborne has little room for maneuver, given the government's primary plan to dramatically reduce borrowing and the recent warnings from credit ratings agencies that the country risks losing its cherished triple A credit rating if the public finances don't improve as planned.
Osborne has also been constrained by the muted recovery from recession. He said Britain's economy would likely to grow by 0.8 percent this year, according to independent forecasts from the Office for Budget Responsibility, which is tasked by government to come up with economic projections. That's slightly higher than the 0.7 percent increase it forecast as recently in November.
Osborne said Britain, the biggest European economy that doesn't use the euro, was likely to avoid a technical recession, officially defined as two consecutive quarters of negative growth. In the last three months of 2011, Britain contracted by a quarterly rate of 0.2 percent. In 2013, Osborne projected that Britain's economy would grow 2 percent, slightly lower than the previous forecast of 2.1 percent. The projected growth rates being forecast are still lower than the country's long-run average of around 2.5 percent.
Osborne also said that Britain would borrow 126 billion pounds ($199 billion) in the fiscal year to end-March, 1 billion pounds less than previously projected. He also said the peak in the country's debt will be lower than previously anticipated at 76.3 percent in 2014-15.
Osborne said the budget "reaffirms our unwavering commitment to deal with Britain's debt."
Osborne outlined a range of measures he hoped would kick-start growth. His decision to cut the rate of corporation tax by a further penny in the pound in April takes the rate down to 24 percent. By 2014, he said the rate would be 22 percent, and within earshot of the 20 percent basic rate of income tax.
The Labour opposition pounced on Osborne's decision to cut the top rate of tax, mocking him for his oft-repeated mantra that "we're all in this together."
Many of the measures announced in the budget had already been telegraphed in recent weeks, including the reduction in the top rate of tax and the increase in the level individuals start paying tax. It's a long way from budget days of the past when the contents of the Chancellor's red box were a heavily-guarded secret — in 1947, Hugh Dalton had to resign as Britain's finance chief for divulging some of his budget plans to a journalist on the day of his statement.
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