Open

Coming up

Don't miss

Replay


LATEST SHOWS

IN THE PAPERS

'Steely resolve of reporters exploited by pared-down employers'

Read more

BUSINESS DAILY

US judge calls Argentina bond swap offer illegal

Read more

IN THE PAPERS

Cécile Duflot ruffles some feathers

Read more

MEDIAWATCH

Media accused of pro-protester bias in Ferguson

Read more

DEBATE

The Murderous Lure of Jihad: Tackling ISIS and its Worldwide Recruitment (part 2)

Read more

DEBATE

The Murderous Lure of Jihad: Tackling ISIS and its Worldwide Recruitment

Read more

FOCUS

Republicans block Obama's bid to hike minimum wage

Read more

WEB NEWS

Calls for ISIS media blackout after execution of James Foley

Read more

WEB NEWS

Web users divided over Darren Wilson

Read more

  • Fear of Ebola sky-high among Air France workers

    Read more

  • US says Islamic State threat 'beyond anything we've seen'

    Read more

  • Malaysia mourns as remains of MH17 victims arrive home

    Read more

  • Hollande is ‘nobody’s president’ says former French minister

    Read more

  • Reporter’s IS captors taunted family, asked for €100m ransom

    Read more

  • Two US Ebola patients leave hospital ‘virus-free’

    Read more

  • Turkey’s Erdogan names foreign minister Davutoglu as next PM

    Read more

  • US reaches historic $16.7bn settlement with Bank of America

    Read more

  • Special report: Supplying Ukraine’s soldiers on the front line

    Read more

  • Israeli air strike kills three top Hamas commanders

    Read more

  • France delivered arms to Syrian rebels, Hollande confirms

    Read more

  • Tensions high in Yemen as Shiite rebel deadline looms

    Read more

  • Interactive: Relive the Liberation of Paris in WWII

    Read more

  • French village rallies behind besieged elderly British couple

    Read more

  • Former Irish PM Albert Reynolds dies at 81

    Read more

Business

British Chancellor to announce VAT cut

Text by REUTERS

Latest update : 2008-11-24

The British Chancellor of the Exchequer, Alistair Darling, is set to announce a cut in VAT from 17.5% to 15% to restart the stalling economy. A 5% rise in the rate of income tax for high earners is also planned - if Labour wins the next election.

Prime Minister Gordon Brown will try to kickstart the stalling British economy on Monday by spending billions of borrowed pounds on tax cuts in a bid to stop a recession turning into a slump.

The package, expected to total up to 20 billion pounds ($30 billion), or more than one percent of gross domestic product, will include extra public spending designed to lift the economy.

Brown's finance minister, Alistair Darling, will announce plans to plug the hole in state finances by raising taxes in future, including a major political shift in the form of a sharp rise in income tax for high earners, media reports say.

"Doing nothing is not an option," Brown will tell a business conference on Monday. "We need timely action now to prevent permanent damage."

The package, which Darling will outline to parliament at 1530 GMT, is expected to include a cut in sales tax and help for businesses, low earners and struggling home owners.

The stakes are high: Britain is sliding into recession with house prices slumping, unemployment rising and manufacturing output shrinking.

Although Brown's handling of the financial crisis has lifted his flagging popularity, a poll published on Sunday still showed his Labour Party trailing the opposition Conservatives by 11 points, a wider margin than some other recent surveys.

His chances of winning the next election, due by mid-2010 and which Brown has said he does not plan to call next year, may depend on the recession being relatively short and shallow -- but that is looking increasingly unlikely.

Respected economic forecasters, the National Institute of Social and Economic Research, said on Monday Britain's economy would shrink by 1.5 percent next year and is not expected to start recovering until early 2010.

In March, Darling forecast growth of about 2 percent this year and around 2.5 percent in 2009.

Soaring budget deficit

Labour's spending measures could send Britain's budget deficit ballooning to around 120 billion pounds in the next financial year, forcing them to abandon long-standing rules limiting government borrowing.

To persuade markets the government will balance the books once the economy improves, Darling is expected to announce plans for deferred tax rises and public spending curbs.

British media said one measure would be a new 45 percent income tax rate on high earners if Labour wins the next election, up from the current top rate of 40 percent.

The move would be controversial because it would break a Labour pledge that formed the backbone of Labour's revival in the 1990s not to raise taxes on high earners.

"Every election we have fought and won, we have said that we very clearly that there will be no increase in the rate of personal income tax -- and this time we are not going to say that. We're not going to say it because we are going to increase it," Labour MP Geoffrey Robinson told BBC Radio.

The centrepiece of Monday's plan will be a temporary cut in value-added tax, several newspapers reported.

They said VAT could be reduced to 15 percent -- the lowest level allowed by the European Union -- from 17.5 percent, boosting consumers' spending power before Christmas. The cut would be reversed after one or two years.

The Sunday Times said Darling would scrap plans to increase corporation tax for small companies and exempt foreign dividends from tax in an effort to allay concerns that have led several big companies to shift their tax domicile to Ireland.

A Treasury spokesman declined to comment on the reports.

Germany, the Netherlands and Spain have already announced stimulus plans. A European Union package, worth up to 130 billion euros ($163 billion), will be unveiled on Wednesday.

Date created : 2008-11-24

COMMENT(S)