LONDON (AP) — 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 measures to prevent tax avoidance 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, arguing that the original higher rate did not yield as much as expected — partly because the rich were able to avoid tax.
Osborne sought to deflect any criticism that any largesse was confined to the wealthy by announcing a big hike in the level that Britons start paying tax to 9,205 pounds ($14,500). The cost of that measure will cost the Treasury around 3.3 billion pounds ($5.3 billion) in 2013-14.
"Together, the British people will share in the effort and share the rewards," Osborne said at the conclusion of his hour-long statement. "This country borrowed its way into trouble, now we're going to earn our way out."
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 charge 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 — 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.
Tony Ryland, a senior tax partner at London Chartered Accountants Blick Rothenberg, said the changes will have "a major effect on the London housing market, potentially driving away overseas buyers."
The leader of the Labour opposition Ed Miliband 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" and that he had failed the fairness test.
"After today's budget, millions will be paying more while millionaires pay less," Miliband said.
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."
Analysts said the statement was a bit brighter than those that have been previously issued from the dispatch box but that the British economy had a long way to go before it had recovered from the shock of the last few years.
"The vast majority of the cuts in public spending lie ahead," said Ian Stewart, chief economist at accounting and consultancy firm Deloitte. "There's still a long haul ahead for the U.K. economy."
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.
"This was generally a steady, but business-friendly, budget," said Andrew Goodwin, senior economic advisor at the Ernst & Young ITEM Club. "It is clear that the government is trying to improve the climate for business and it's now up to businesses themselves to deliver the goods."
Osborne also announced that tax relief now given to film productions would be extended next year to producers of video games, animation and "high-end" television programs such as "Downton Abbey."
"Not only will this help stop premium British TV programs like 'Birdsong' being made abroad, it will also attract top international investors like Disney and HBO to make more of their premium shows in the U.K.," Osborne said.
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.
- George Osborne