Latest Public Sector News

21.03.12

50p rate of income tax on highest earners to be cut

The introduction of regional pay for public sector workers and changes to income tax are set to be announced by Chancellor George Osborne in his Budget this afternoon. The announcement comes after ONS statistics show a rise in borrowing in February to £15.2bn, up from £8.8bn for the previous year.

Osborne is expected to cut the top rate of income tax, on incomes above £150,000 from 50p to 45p, although this will only come into practice in a year’s time. This move has been criticised by the opposition, as well as some Liberal Democrats who want it retained.

In return, Osborne is expected to clamp down on tax avoidance, change pensions relief for higher earners, and most importantly raise people’s personal allowance towards the £10,000 target faster than had been expected. This has been a key Lib Dem demand. In practice, the threshold at which anyone pays income tax could be raised to £9,000 next year, leaving the average standard rate taxpayer £305 per year better off.

But shadow Treasury minister Owen Smith said: “You’d need to be on another planet to think you can have a Budget where we're going to cut taxes for the richest 1% in this country and then plausibly describe that as fair.

“We think it is absolutely an extraordinary decision being taken at a point when ordinary families... with high inflation, low wages, massive cuts already to tax credits... when those families are feeling the squeeze.”

Osborne could also introduce measures to clamp down on tax avoidance, something that it estimated to cost the Treasury around £5bn a year. There will be a rise in stamp duty for sales of houses worth over £2m.

Business Secretary Vince Cable said: “The Liberal Democrats have pushed very hard to lift low earners out of tax and help hard pressed middle income families and that’s our priority, but the Budget has to be judged against the extent to which it contributes toBritain’s recovery from this dreadful economic crisis into which we’ve been plunged.”

The introduction of regional pay for public sector workers has been opposed, especially by workers inWales, who could be hit the hardest by such a change. The Institute for Fiscal studies showed thatWaleshas the biggest public-private pay gap in theUK.

Although the change would not mean pay cuts for workers, it would mean lower rises in the future to gradually make public sector pay reflect regional earnings.

The PCS union’s senior national officer Jeff Evans said regional pay would be “an absolute disaster for the Welsh economy”.

Tell us what you think – have your say below, or email us directly at opinion@publicsectorexecutive.com

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