Alistair Darling will press ahead with a crackdown on foreign residents who enjoy "non-domicile" tax status in Britain amid signs that the move enjoys strong cross-party support among MPs.
When he presents his first Budget today, the Chancellor will reject calls by business leaders for a one-year delay in the introduction of reforms to capital gains tax and a £30,000-a-year levy on "non-doms" who have lived in Britain for seven years.
But he will seek to limit the pain for "non-doms" from America by announcing that they will not be taxed twice – once in the US and again in Britain. The Treasury is close to reaching an agreement with the US government to ensure they escape "double taxation".
A high-profile campaign and lobbying effort, including warnings that many "non-doms" would leave Britain if the levy is introduced, has failed to deter Mr Darling or impress MPs. A survey of 166 backbenchers by ComRes for Lexington Communications found that 84 per cent believe that "non-doms do not pay their fair share of UK taxation". Some 92 per cent of Labour MPs and 96 per cent of Liberal Democrats share this view, as do 63 per cent of Tory MPs.
In his Budget, Mr Darling will acknowledge the rising cost of living for hard-pressed families by raising tax credits to combat poverty and offering some help for pensioners. He will also delay a 2p-a-litre rise in petrol duty until October, arguing that motorists have already been hit by rising pump prices.
But he will say that the fuel duty rise, originally due on 1 April, must go ahead in the autumn on environmental grounds. Other "green taxes", such as moves to hit gas-guzzling cars, may be phased in to avoid jeopardising growth prospects. But Mr Darling is likely to raise alcohol duties by more than inflation.
The Chancellor will limit the tariffs paid by some of the poorest households on pre-paid gas and electricity meters but has ruled out a windfall tax on the profits of the energy companies.
Labour MPs hope higher tax credits will form the centrepiece of the Budget because they fear the Government will miss its target to halve child poverty by 2010. The Tories highlighted figures suggesting the number of families living in extreme poverty has risen from 1.4 million to 1.8 million since Labour made its pledge.
According to ComRes, 85 per cent of Labour MPs want the Chancellor to help low-income families through the benefits system, while only 46 per cent of Tory backbenchers share this view. The survey found that MPs believe the three most important issues facing the Chancellor are the global credit crunch (79 per cent), the challenges of globalisation and international competitiveness (57 per cent) and skills (43 per cent).
The pro-business stance adopted by Gordon Brown and Tony Blair over the past 10 years does not appear to be shared by Labour backbenchers. Although 53 per cent of Tory MPs identified the burden on business as an important issue, only 8 per cent of Labour MPs agreed.
With Mr Darling likely to raise borrowing and cut his economic growth forecast, the Tories will accuse Mr Brown of leaving Britain in a worse position than its competitors to cope with the global slowdown because it failed to "prepare for bad times" during 10 years of worldwide growth. A Tory source said: "The central charge is economic incompetence. Labour has not put prudence and stability first."
Vince Cable, the Liberal Democrats' Treasury spokesman, warned: "There are very good reasons for believing there is a high risk of recession. It is not probably. It is certainly possible. We therefore need to consider how the British economy would cope."Reuse content