2012 Budget: Tax allowances set to rise further

George Osborne is set to announce a significant further increase in personal tax allowances in Wednesday's Budget, the BBC understands.

The threshold at which anyone pays income tax is set to increase to £9,205, benefiting millions of people.

The chancellor is also expected to announce a cut in the top rate of tax from 50p to 45p, but not for a year.

These measures are set to be paid for by ending tax reliefs and loopholes for the wealthy and raising property taxes.

Mr Osborne will unveil his third Budget in the House of Commons at 1230 GMT.

It is expected to include a tax cut for millions of taxpayers in the form of a further increase in personal tax allowances to more than £9,000.

The BBC's Political Editor Nick Robinson said this could leave the average taxpayer £305 a year better off.

Ministers lifted the tax threshold by £1,000 to £7,475 in April 2011, meaning the first £7,475 of people's income is not liable for tax.

A further £630 increase to £8,105 was due next month and while the coalition has pledged to ultimately raise the threshold to £10,000 by 2015, the Lib Dems have been pushing for "further and faster" action on what is regarded as a flagship policy.

'Radical'

Speaking on Tuesday, Deputy Prime Minister Nick Clegg said he wanted the Budget to relieve the tax burden on those on low and average incomes, many of whom were "feeling the pinch and struggling to make ends meet".

The commitment to meet the £10,000 target was "the most radical tax policy in British politics for many years", he said.

Mr Osborne has also said he wants to do more to help "working people".

But it is unclear how any further increase will be paid for, when it will come into force, and whether it will apply to all taxpayers or only those paying the basic 20% rate.

Economists have said raising the threshold would cost billions, although it could be partly paid for by reducing higher rate tax allowances. Those not paying tax at all will not benefit.

Other tax changes in the Budget could see the 50p top rate of tax reduced to 45p.

The BBC's business editor Robert Peston said he expected the announcement but he understood that it would not be implemented for a year.

The 50p rate, levied on incomes above £150,000, was introduced in April 2010.

It has been criticised by the business community and many Conservative MPs who say it deters enterprise and investment but some Lib Dems want it to be retained. The chancellor is expected to base any decision on the findings of a review by HM Revenue and Customs review into how much the 50p tax raised last year.

Tax avoidance

A range of measures is also expected to clamp down on tax avoidance, estimated to cost the Treasury about £5bn a year.

Mr Osborne has said the practice of people avoiding stamp duty by buying property through offshore companies is "unacceptable" and will be dealt with "aggressively".

The Lib Dems have floated the idea of a "tycoon tax" in which the wealthiest people pay a minimum rate of tax on all their earnings by capping allowances and reliefs open to them.

Other tax changes affecting the wealthiest in society could see a big rise in stamp duty levied on purchases of properties worth more than £2m.

The chancellor will also use Wednesday's speech to update MPs on the latest forecasts for the UK's struggling economy.

In November, the independent Office for Budget Responsibility revised down the rate at which UK economy is expected to grow in 2012 to 0.7%.

The economy contracted in the final three months of 2011 and Labour have called for the chancellor to focus on tackling rising unemployment amid fears of a double-dip recession.

The opposition want a cut in the headline rate of VAT and a one-off bank bonus tax to help get the young unemployed into work and to build more affordable homes.

"We want a Budget for jobs and families which is fair," said shadow chancellor Ed Balls.

source:http://www.bbc.co.uk/news/uk-politics-17450719