Britain’s finance minister has cut the tax rate 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 on 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 ($14,500). The cost of that measure will cost the Treasury around £3.3 billion ($5.3 billion) in 2013-14.
In 2013, Osborne projected that Britain’s economy would grow 2 per cent, 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 ($199 billion) in the fiscal year to end-March, £1 billion less than previously projected.
“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.