Political budget sets out election battle lines

Alistair Darling drew up the battlelines for the UK general election today with a highly political Budget that squeezed the better off while offering help to new homebuyers, the elderly and the young unemployed.

Alistair Darling drew up the battlelines for the UK general election today with a highly political Budget that squeezed the better off while offering help to new homebuyers, the elderly and the young unemployed.

In his final parliamentary setpiece before the country goes to the polls, the Chancellor of the Exchequer said he was determined to ensure that those who had done well in the good years “should now pay their fair share of tax”.

However the Tories warned that tens of millions of ordinary workers would be hit by an effective tax increase with a freeze on personal allowances, despite a 3.7% retail price inflation rate.

At the centrepiece of Mr Darling’s statement was a two-year stamp duty holiday for first-time home-buyers on properties up to £250,000 (€279,000), paid for by a new 5% rate on homes over £1m (€1.1m).

He said that lower-than-expected unemployment figures meant that he could extend the guarantee of a job or training place for all 18 to 24-year-olds for an additional 12 months to March 2012.

And he announced that the inheritance tax threshold would be frozen at £350,000 (€390,000) for another four years – in contrast to Tory plans to scrap the levy on estates over £1m – in order to help pay for care for the elderly.

At the same time the Chancellor sought to reassure the markets of his commitment to tackling Britain’s record deficit, with a further £9bn (€10.05bn) in savings on top of the £11bn (€12.2bn) of efficiency measures in December’s Pre-Budget Report (PBR).

However the biggest cheer on the Labour benches came when he announced a new clampdown on tax evasion, including an information-sharing agreement with Belize - the Central American tax haven where the “non-dom” Tory deputy chairman Lord Ashcroft reportedly has much of his fortune.

Mr Darling said that stronger-than-forecast tax revenues – including £2bn (€2.2bn) from the windfall levy on bank bonuses – had enabled him to put in place measures to reinforce the recovery while driving down the deficit.

Borrowing this year, he said, would be £167bn (€186bn) – down £11bn on the £178bn (€198bn) he forecast in the PBR – falling back to £74bn (€82bn) by 2014-15, £8bn (€8.8bn) lower than previously predicted.

Savings would be achieved by moving 15,000 civil servants out of London over the next five years – including 1,000 staff in the Ministry of Justice - reducing the cost of public sector pay and pensions, and cutting back on lower priorities.

However Mr Darling made clear that the deepest cuts would not come until after the general election, warning that the next spending round would be “the toughest for decades”.

He acknowledged that the measures on stamp duty and inheritance tax came on top of plans announced in the PBR for a new 50% top rate of tax, the phasing out of personal allowances for the better off, and the tax on bank bonuses.

“We have not raised these taxes out of dogma or ideology. We are determined to ensure our overall tax regime remains competitive,” he said.

“But I believe those who have benefited the most from the strong growth in incomes in past years should now pay their fair share of tax.”

He said that there would be a £2.5bn (€2.79bn) one-off growth package to help small businesses and promote innovation, including a temporary cut in business rates and the creation of a new growth capital fund.

A new £2bn (€2.2bn) “green” investment bank, funded in part by the sale of assets such as the Channel Tunnel rail link, will be established to fund projects such as windfarms and other renewable energy sources.

While alcohol duties will continue to rise at 2% above inflation, next month’s planned 2.76p increase in fuel duty will be phased in in three stages between now and January.

However, cider drinkers will be hit by a 10% increase to end the “anomaly” which meant that it had been undertaxed compared with other alcoholic beverages.

Shadow chancellor George Osborne tonight bitterly attacked the freeze on personal allowances contained in the detailed figures in the Budget “red book”.

“Thirty million working people will be hit by this new Labour stealth tax. The Chancellor said nothing about the biggest tax rise in the Budget,” he said.

“That tells you everything you need to know about Labour’s cynical tricks and their priorities. The bill for Gordon Brown’s economic mistakes is going to be paid by every working family in Britain.”

In the Commons, Tory leader David Cameron said that Labour had nothing to offer but “debt, waste and taxes”.

“Labour have made a complete mess of the British economy and they are doing nothing to clean it up,” he said. “The national debt has doubled and is set to double again.”

Liberal Democrat leader Nick Clegg dismissed the Budget as “a footnote to 13 years of failure” by Labour.

“This Budget is the old politics and the old politics is not good enough any more. It’s time for honesty in spending and fairness in taxes,” he said.

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