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Chancellor George Osborne is expected to unveil plans for an income tax cut worth around £45 a year in his Budget as he battles to offer voters some good news amid grim economic statistics.
He is tipped to announce that the amount people can earn tax free will rise by £600 from April 2012, benefiting 25 million people and taking 250,000 out of income tax altogether.
His annual statement will also introduce help for first-time home buyers through a £250 million Treasury-backed scheme to offer equity loans worth 20% of a property. Available to households earning less than £60,000, they would be interest free for five years, with borrowers paying 1.75% interest the year after and then 1% above inflation.
Mr Osborne was dealt a double whammy of economic bad news on Tuesday as he put the final touches to his second Budget since the Tory-Lib Dem coalition came to power in May.
He has cast his statement as the moment the Government moves “from rescue to reform”, building on the deficit-reduction measures of 2010 with a business-friendly package to boost jobs and growth.
Official statistics released on Tuesday, however, showed inflation rising to a two-year high of 4.4% while borrowing spiked upwards to £11.8 billion in February, diminishing hopes of a significant undershoot on the Government’s target of £148.5 billion for the financial year.
Mr Osborne has promised the public will not be asked to swallow any further tax hikes or spending cuts, insisting that last year’s £81 billion package is enough to wipe out Britain’s deficit by the end of the Parliament.
And he has dismissed Labour’s call for a Plan B of slower and gentler cuts, which he insists would be “a huge mistake” and risk shattering market confidence in the UK.
Expectations are mounting in Westminster that Mr Osborne will use the statement to float a controversial proposal to merge income tax and national insurance, but some Conservative backbenchers are fearful that effectively changing the basic rate of income tax from 20p to 32p will be hard to sell politically.
Motorists are hopeful the Chancellor will scrap - or at least postpone - the 1p hike in fuel duty scheduled by Labour predecessor Alistair Darling for April 1. But Labour will doubtless accuse him of not doing enough to ease the pain over prices at the pumps - currently at a record £1.40 a litre for diesel and £1.33 for petrol.