Emergency Budget: The axe falls

By Ian Dunt and Rebecca Burns

Britain faces tough times ahead following an emergency Budget which raised VAT and ended a raft of welfare payments.

The emergency Budget, a long-promised part of the Tory campaign, saw VAT shoot up 2.5% to 20% from January next year. The chancellor said he expected to raise £13 billion by the end of the parliament through this measure alone.

From midnight tonight those earning above the basic rate of income tax will pay 28% capital gains tax (CGT).

Emergency Budget as-it-happened

CGT had caused consternation among right-wing Tory backbenchers, who said it discouraged entrepreneurism and achievement.

But the moderate reform, which fell far short of making it equivalent to income tax, was intended to settle some nerves on the benches behind George Osborne.

The chancellor insisted the lower level was a result of “dynamic” Treasury calculations, which suggested it would get less money through a higher rate.

Sketch: Pallid Osborne’s horror Budget

Lib Dem arguments that CGT allowed for tax avoidance seemed to be vindicated by forecasts which suggested most of the extra revenue expected would actually come from income tax.

The welfare system will be radically overhauled. Several payments, including infant tax credits, health and pregnancy grants and surestart maternity grants after the first child, will be cancelled. Middle class benefits will be scrapped.

Emergency Budget: Reactions

Even more controversially, child benefit will be frozen for the next three years.

Disability allowance will be overhauled, with a medical assessment replacing forms in a bid to reduce the cost of the service and get more people into work.

Housing benefit is also for the chop, with £1.8 billion of cuts expected by the end of the parliament.

” target=”_blank”>George Osborne’s Budget statement in full

Public sector pay has been frozen for two years – one year longer than previously announced – but those earning £18,000 or under will get assistance.

The chancellor confirmed the British government would push ahead with a bank levy, despite Labour arguments that it should not be adopted unilaterally.

In a significant victory for the chancellor, he announced that the French and Germans were backing the plan and releasing a joint statement in support of it.

Emergency Budget: Political responses

“We must remember this was a failure that started in the banking sector,” he said.

Lib Dem plans to take people on lower incomes out of income tax altogether were confirmed, with 880,000 people taken out of income tax.

There were no new increases in duties on alcohol, cigarettes and fuel.

Emergency Budget: Take politics.co.uk’s poll

Council tax is frozen for a year, as per Conservative election promises.

Corporation tax is being cut by one per cent, from 28% to 27%, next year, and then by one further per cent every year for the next consecutive four years, giving Britain the lowest rate of corporation tax it has ever had, Mr Osborne said.

The chancellor admitted that “everyone will pay something” but insisted that those on the bottom of the income scale will pay less than those at the top.

“It’s a progressive Budget,” he told the Commons.

“The richest paying the most and the vulnerable protected.”

But shadow work and pensions secretary Yvette Cooper said the Budget would “push people on the dole”.

“It’s really destructive for jobs, for families across the country,” she told politis.co.uk.

“It would be bad for growth and also I think the VAT increase, something that they promised not to do, is a broken promise but it’s also deeply unfair – particularly on pensioners.

“They’ve cut hundreds of thousands of job and training places for the unemployed so what they’re doing is pushing people onto the dole and that means there’s going to be more people on benefits, not less, as a result of their proposals.”

Responding to the statement, Labour leader Harriet Harman branded the Budget unnecessary, counterproductive and unethical.

“It’s a Tory Budget that will throw people out of work, hold back economic growth and harm public services,” she said.

“It’s his first Budget but it’s the same old Tories.

“This is true to form for the Tories, but it includes things the Lib Dems have always been against. Surely they cannot vote for this,” she added.

“How could they let the Tories so exploit them? Can’t they see they are just a fig leaf? The Lib Dem leaders have sacrificed everything they ever stood for to ride in ministerial cars.”

Yesterday, prime minister Nick Clegg tried to head off any rebellion in his own ranks by firing off an email to party members admitting the Budget was likely to be “controversial”.

“Without action on the deficit, we will carry on racking up unaffordable debts our children will have to pay off,” he argued.

“And we will undermine the economic growth needed to create jobs and opportunities for all of us. There is nothing fair, liberal or progressive about any of that.”

But Labour MP Margaret Hodge insisted the Budget had discredited him.

“Nick Clegg was utterly clear that he wouldn’t put up VAT a few weeks ago,” she told politics.co.uk.

“He’s done such a turnaround that i don’t know how any Liberal Democrat will now face the electorate. They really were elected under a false prospectus.”

Immediately after the Budget, bookmakers William Hill put the chances of the coalition collapsing at 10/1.

“Although the coalition is currently presenting a united front there are rumours that it wouldn’t take much for cracks to begin to show and if that were the case an election may not be far behind,” said spokesman Graham Sharpe.

Green party leader Caroline Lucas described the Budget as “devastating”.

“I thought it was pretty devastating to be honest, I thought the whole approach was wrong and we’re in great danger of precipitating a double dip recession by having such swinging cuts at this point in the economic cycle,” she told politics.co.uk

“I think we should also have been looking far more at progressive taxation rather than the kinds of cuts we’re talking about here to public spending. When you add to that the VAT increases then I think any idea that this is a genuinely progressive budget is simply fantasy.”

The Budget will now be debated in the Commons for the next few days.