Darling unveils 50% top tax rate

Alistair Darling has announced a new top tax rate of 50% for those earning more than £150,000 from next April.

The chancellor unveiled the measure after delivering a stark Budget report on the state of the UK economy.

He said debt would hit a record £175bn this year and the economy shrink 3.5% - its worst performance since 1945.

But he is gambling on a swift recovery and unveiled measures including a £2,000 "car scrappage" scheme aimed at kick starting industry.

He is predicting the economy will start to grow again at the end of this year.

But Conservative leader David Cameron said his speech revealed the "utter mess" the prime minister had made of the economy.

KEY POINTS
50% tax rate for earnings over £150,000
Growth forecast revised down
Borrowing increased
£15bn 'efficiency savings'
Clawing back tax relief on top earners' pension
£2bn help for young unemployed
£1bn to boost housing market
Car scrapping scheme

He added that Mr Darling had not done enough to get spending under control and "Britain simply cannot afford another five years of Labour".

Liberal Democrat leader Nick Clegg described the Budget as a "mish mash of recycled announcements from a government skilled in raising false hopes and incompetent at delivering real help".

BBC Political Editor Nick Robinson said Labour had ditched its manifesto pledge not to raise income tax before the next election in an effort to "wrongfoot" its opponents and cheer its core supporters.

It also wanted to raise money, "although the Institute of Fiscal Studies has questioned whether increasing the top tax rate will raise much".

The new top rate of tax is a change of plan from the pre-Budget report last year in which he had proposed a new tax rate of 45%.

It is also being brought in a year earlier than planned "to pay for additional support for people now".

In other measures, petrol duty will increase by 2p per litre in September and then by 1p a litre above inflation each April for the next four years.

Alcohol duties will go up by 2% - about 1p a pint - from midnight. There will be an increase in tobacco duty of 2% from 6pm - adding about 7p to a packet of 20 cigarettes. Mr Darling said these measures will raise more than £6bn by 2012.

That would help pay for a real terms boost in pensioners' income - including new pension recognition for grandparents who care for their grandchildren - and help for savers with ISAs.

Jobs

There will also be more help to get people back into work quickly and support businesses and homeowners facing problems.

Everyone under the age of 25 out of work for 12 months or more will be offered a job or a place on a training scheme. In addition, the government will create or support up to 250,000 jobs in deprived areas.

Mr Darling also announced an expansion of sixth form and further education places.

In his speech, Mr Darling confirmed the worst year for the economy since the Second World War with a 3.5% decline in 2009 - far worse than his pre-Budget forecasts.

Public borrowing will also soar to record levels as the Treasury wrestles with a toxic combination of falling tax receipts, higher spending and the cost of bank bail-outs.

Stamp duty

But he made clear his plans depended on a rapid economic bounce-back - with a forecast of 1.25% growth next year rising to 3.5% in 2011.

And he admitted that the economy would first face of period of deepening deflation with the Retail Price Index falling to a low of minus 3% by September.

There was grim news on the jobs front ahead of the Budget, with unemployment figures showing the number of people looking for work has reached 2.1 million - its highest level since Labour came to power in 1997.

Meanwhile, official figures showed that public borrowing soared to a record £90bn in the last financial year - almost 6.2% of national income and far higher than the £78bn prediction made by Mr Darling in his pre-Budget report last November.

Mr Darling is expected to plug part of the gap in the public finances with £15bn of "efficiency" cuts from 2010 - after the next election - provoking anger from public service unions.

He also announced he was extending the Stamp Duty holiday on properties sold for less than £175,000 until the end of the year as part of a £1bn package aimed at boosting house sales and building.

At-a-glance: Budget 2009

Here are the key points of Alistair Darling's 2009 Budget:

CIGARETTES, ALCOHOL AND FUEL

• Alcohol taxes to go up 2% from midnight - putting the price of the average pint up 1p

• Tax on tobacco to go up by 2% from 6pm - equivalent to an extra 7p on a pack of 20 cigarettes

• Fuel duty to rise by 2p per litre from September, then by 1p a litre above indexation each April for the next four years

CAR SCRAPPAGE SCHEME

• From next month until March 2010 motorists to get £2,000 discount on new cars if they trade in cars older than 10 years

• The government will provide £1,000 with the industry expected to provide the other half

TAX

• Income tax for those earning more than £150,000 to rise to 50% from April 2010

• Tax relief on pensions to be reduced for people on more than £150,000 a year from April 2011

UK ECONOMY

• Economy forecast to shrink 3.5% in 2009

• Growth expected to pick up in 2010, expanding by 1.25%.

• Economy to grow by 3.5% annually from 2011

• Public borrowing to increase to £175bn this year

• Borrowing levels to rise by £173bn, £140bn, £118bn and £97bn in years after

• Consumer price inflation to fall to 1% by end of year.

• Capital investment to continue at historically high levels until 2012


JOBS AND TRAINING

• Government support for economy to protect 500,000 jobs

• All long-term unemployed under 25s to be offered job or training

• £1.7bn additional resources for Job Centre network

• £250m funding to help people get work experience in growth industries

• Funding to create 54,000 new places in sixth form education

HOUSING

• Scheme to guarantee mortgage backed securities to boost lending

• Stamp duty holiday for homes up to £175,000 to be extended to end of year

• Extra £80m for shared equity mortgage scheme

• £500m to kickstart stalled housing projects - including £100m for local authorities to build energy efficient homes

• £50m to upgrade housing for the armed forces

GOVERNMENT SAVINGS

• Tax loopholes and schemes identified which could provide £1bn of extra revenue over the next three years if closed

• An extra £9bn in efficiency savings is planned

• Public spending to be cut from 1.1% next year to 0.7% in 2011-2012

BENEFITS

• Child tax credit to rise by £20 by 2010

• Child trust funds for disabled children to rise by £100 a year, £200 a year for severely disabled children

SAVINGS

• Annual limit for tax-free ISAs to rise to more than £10,000 for over-50s this year and for everyone else next year

ENVIRONMENT

• Britain commits to cut carbon emissions by 34% by 2020

• An extra £1bn to help combat climate change by supporting low-carbon industries

• £525m for offshore wind projects over the next two years

• £435m support for energy efficiency schemes for homes, firms and public buildings

• £405m to encourage low-carbon energy and advanced green manufacturing

HELP FOR BUSINESS

• Help for loss-making companies extended - they will be able to reclaim more taxes paid in the last three years until November 2010

• Businesses' main capital allowance rate doubled to 40%

• New £750m strategic investment fund to help emerging technologies and regionally important sectors

PENSIONERS

• Grandparents of working age who care for their grandchildren will see that work count towards their entitlement for the basic state pension

• Winter fuel allowance to be maintained at higher level - £250 for over 60s and £400 for over-80s - for another year

• The basic state pension will be increased by at least 2.5%, regardless of inflation

CAR SCRAPPAGE SCHEME

• From next month until March 2010 motorists to get £2,000 discount on new cars if they trade in cars older than 10 years

• The government will provide £1,000 with the industry expected to provide the other half

The Chancellor has not simply increased the top rate to 50 per cent, he also moved the starting date to within this Parliament in direct breach of a central manifesto pledge. As the birth of this pledge was symbolic, so is its death. With it dies Mr Blair's political project. Labour is once again the party of massive public debt, inadequately controlled public spending and taxes on the wealthy.

In the past year we tumbled into recession, bailed out the banks and funded a fiscal stimulus. Yesterday we looked to the Chancellor to say how it would be paid for. The orchestra assembled. The audience settled expectantly. The conductor tapped his baton on his music stand. A hush fell. And from the stage came the shrill, thin sound of a penny whistle.