Britain overhauls tax system in emergency budget

22nd June 2010, Comments 0 comments

Britain overhauled its taxation system on Tuesday, slapping banks with a new levy and ramping up taxes on goods, services and assets but also delivered cuts for the low-paid workers and businesses.

Finance minister George Osborne announced the shake-up in an emergency budget to parliament as the new Conservative-Liberal Democrat coalition set about slashing the country's mountain of debt.

In a joint move with France and Germany, Britain agreed to introduce levies on banks to make them help pay for the damage caused by the financial crisis.

"The governments of France, the United Kingdom and Germany propose to introduce bank levies based on banks' balance sheets," they said, as Chancellor of the Exchequer Osborne said Britain's banking levy would begin in January.

Osborne said the banking tax would raise two billion pounds a year for Britain's government.

Also from January, Britain will raise the VAT tax levied on goods and services to 20 percent from 17.5 percent in a bid to eventually raise more than 13 billion pounds a year.

At the same time, Britain will cut the rate of tax levied on company profits to a record low level of 24 percent by 2014. It currently stands at 28 percent.

"Our current rate ... is looking less and less competitive so we will do something about it," Osborne said.

"Next year we will cut corporation tax by one percent to 27 pence in the pound, the year after we will cut it again by one percent, and again the year after and again the year after that.

"Four annual reductions in the rate of corporation tax that will take it down to just 24 percent. It will give us the lowest rate of any major western economy, one of the lowest rates of the G20 (nations) and the lowest rate this country has ever known," he added.

Osborne also decided to immediately raise capital gains tax, levied on the sale of non-business assets such as shares and second homes -- to 28 percent from 18 percent for the highest earners.

For basic rate taxpayers in Britain, the level of capital gains taxation will remain at 18 percent.

Meanwhile the point at which workers pay income tax will be raised by 1,000 pounds to 7,475 pounds.

The head of Britain's main employers' body welcomed the tax changes, which were announced alongside massive cuts to public spending.

"The chancellor has achieved his twin objectives of setting out a credible plan for the public finances and producing a convincing growth strategy for the longer-term," said CBI director general Richard Lambert.

"Mr Osborne is close to achieving his 80:20 ratio of spending cuts to tax increases, which is so important to sustaining long-term growth. He has struck a sensible balance on capital gains tax, limiting the impact of the increase on entrepreneurial activity and long-term savers."

Lambert meanwhile said that the "five-year route map for corporation tax provides much-needed consistency and certainty."

And on the income tax change, he said Osborne had "sensibly taken measures to secure public support by offering extra help to cushion the impact on low-income families."

But Ed Balls, a contender to be the next leader of the opposition Labour party, hit out at the VAT hike.

"Increasing VAT to 20 percent is deeply unfair. It hits the poorest families the hardest including pensioners and the unemployed who don't pay income tax ... And it will be damaging to jobs, growth and our economic recovery."

© 2010 AFP

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