Council tax to be frozen while VAT rises

22 Jun 10
Council tax is set to be frozen for a year from April under measures included in Chancellor George Osborne’s maiden Budget
By Richard Staines

22 June 2010

Council tax is set to be frozen for a year from April under measures included in Chancellor George Osborne’s maiden Budget.

However, Osborne said that government funding to help councils keep tax down would come at a price.

‘If you can keep your cost increases low, then we will help you to freeze council tax for one year from next April,’ the chancellor announced.

Meanwhile, a 2.5% hike in VAT to 20% will raise up to £13bn a year for the Treasury, said Osborne.

The changes, which will come into effect from January 1, were essential to ensure that further cuts were avoided elsewhere in the economy, he said.

Essential items, such as food, clothing and zero-rated items, including newspapers and printed books, will remain exempt from VAT over the course of the Parliament, the chancellor added.

Osborne also announced that banks would be made to contribute to the costs of the recession, which was sparked by a collapse in the international banking system in 2008.

From January 2011, the government is to introduce a bank levy, which applies to UK banks and building societies, and to UK bank operations abroad.

The levy will be based on a bank’s core assets and will apply only to larger ones. Once they are up and running, the levy is expected to generate more than £2bn a year.

Other taxation measures announced today include changes to capital gains tax, aimed at ensuring the very richest in society cannot dodge payments.

Osborne said higher-rate taxpayers will pay 28% on their capital gains, a rise of 10%, from tonight. The changes will generate an extra £1bn a year in receipts.

Overall, Osborne said that 23% of the money needed to pay off the country’s £149bn deficit needed to come from tax increases.

However, there were some tax cuts. Personal allowances for basic rate taxpayers will rise by £1,000 to £7,475 from next April – and Osborne reaffirmed his intention to increase this to £10,000 in the longer term.

Corporation tax falls from 28% to 27% - and by a further 1% for each of the following three years to stimulate business.

Rounding off his speech, Osborne said he would re-link the basic state pension to earnings and increase the child element of the child tax credit by £150 next year.

The pension changes will allow older people to live with dignity in retirement and the tax credit bonus will provide an extra £2bn a year to low-income families, Osborne said.

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