Chancellor Set for Radical Tax Changes
Alistair Darling is today expected to announce a 2.5 per cent reduction in VAT and deferred tax rises when he delivers the pre-Budget report.The chancellor is expected to set out plans to cut the 17.5 per cent of value added tax on goods and services to 15 per cent for at least one year and possibly two.
However in a radical shift for the Labour Party, which has previously pledged not to raise the basic or top rate of income tax, he is also set to signal that the government would introduce a new 45 per cent rate for earnings over £150,000, if the government were re-elected for a fourth term.
The policy would be part of a package of medium-term measures designed to recoup cash from the Treasury's short-term fiscal stimulus and bring the public finances back into balance in the face of record deficits.
The VAT move, which would cost £12.5bn, is intended to boost consumer spending and stimulate the economy.
It would take VAT to the lowest level allowed under EU law, representing the first time change in the tax since the Conservatives increased it to 17.5 per cent in the early 1990s.
The VAT change comes as part of a package of measures designed to support homeowners, consumers, small businesses motorists and low-income households during the economic downturn.
Darling is expected to announce targeted tax cuts for low-income families, possibly through tax credits, when he delivers the annual autumn statement to the House of Commons on Monday.
Other measures could see the £120 rebate for those who lost out following the abolition of the 10p tax band extended for another year.
There is also talk of a three month grace period for struggling homeowners facing mortgage arrears and repossession, and planned rises in vehicle excise duty could be put off for another year.
Public sector efficiency savings are predicted with spending set to be redirected to help fight the recession.
Gordon Brown has denied that increasing borrowing to fund tax cuts was a "gamble", and insisted the government was taking "necessary and responsible" action.
"Everybody generally agrees that the fiscal stimulus - and what we mean by fiscal stimulus is real help for businesses and families now - has got to be substantial to have an impact," he told BBC1's The Politics Show on Sunday.
However, with government borrowing predicted to increase to record levels of £100bn or more there are concerns that taxes might have to rise in the future.
The Conservatives are warning of a "tax bombshell", and party leader David Cameron raised concerns that the government "going on a borrowing binge... is going to lead to much higher taxes later".
"That actually says to people this is not a stimulus, this is actually a warning about a big tax bombshell," he told BBC1's Andrew Marr show on Sunday.
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