'Tough but fair' Budget to lift low-paid people out of tax net

British Chancellor of the Exchequer George Osborne is expected to lift 880,000 low-paid people out of the income tax net today as he unveils what he will call a "tough but fair" Budget that will squeeze state benefits and public sector pay and pensions.

In his emergency Budget, the Chancellor was to promise to spread the pain fairly throughout society. He was to publish figures showing that the top 10 per cent on the income scale will pay proportionately more than the poorest.

Osborne was to raise the tax-free £6475 ($13,500) personal allowance by £1000 to £7475, a first step to the Liberal Democrats' goal of raising the income tax threshold to £10,000.

Deputy Prime Minister Nick Clegg will trumpet the move as evidence that his party has shaped today's measures.

Although the Chancellor was to announce tough government spending limits for the next four years, he was to pledge no further cuts in capital spending such as the school building programme. He was to give companies an incentive to recruit by saying that they will not have to pay national insurance for 650,000 low-paid workers.

A ComRes survey of 145 business leaders for the Independent found seven out of 10 believe the negative effect of the cuts will be felt for at least a decade. A majority (60 per cent) believe that public sector workers will be worst affected, ahead of families (8 per cent). More than half (55 per cent) trust Osborne to make the right cuts for growth. But only 31 per cent believe a Tory Government would have made better decisions on where to cut than the Lib-Con Coalition.

Osborne hopes his "fairness" measures will sugar the pill, but it will remain bitter for many public sector workers and those who rely on benefits. Treasury officials have advised ministers to consider raising state benefits in line with the consumer prices index rather than the retail prices index. The controversial plan would normally cut the annual rise in benefits by about one percentage point and shave £1 billion off payments.

In an email to Liberal Democrat members yesterday, Clegg admitted it would be a "difficult" and "controversial" Budget and that Labour would claim his party had "sold out to go along with Conservative cuts". But he insisted: "You will see the stamp of our Liberal Democrat values ... This is one of the hardest things we will ever have to do, but I assure you, the alternative is worse: rising debts, higher interest rates, less growth and fewer opportunities."

- Independent