Budget 2012

Good for footballers and the City, bad for smokers and the old

Tax allowances for elderly cut and frozen. Further £10bn in welfare cuts signalled. Income tax for rich cut from 50p to 45p

George Osborne gambled on a tax cut for the top 1 per cent of earners, put a surprise squeeze on pensioners, and warned of a new round of public spending cuts in a highly controversial Budget yesterday.

Click here to view the graphic 'Your Money: How they take it and how they spend it'

The Chancellor hopes his three doses of nasty medicine will be outweighed by a tax cut for the 24 million people earning less than £100,000, who will benefit from a rise in the personal tax-free allowance from £8,105 to £9,205 in April next year.

In a package that targeted Britain's "squeezed middle", he bowed to David Cameron's edict to soften the blow from his previous decision to withdraw child benefit from families with at least one taxpayer on the 40p rate of tax from next January. People earning between £43,000 and £50,000 will now keep all their child benefit and it will be withdrawn gradually for people who earn between £50,000 and £60,000, at which point they will lose all of it. About 750,000 families will now keep some or all of their benefit rather than lose it, a partial retreat costing about £500m.

But Mr Osborne risked confirming the Conservatives' image as the "party of the rich" by announcing that the top rate of tax, which bites on incomes above £150,000 a year, would fall from 50p to 45p in April next year. He insisted the 50p band introduced by Labour was raising very little, and the £100m cost would be recouped five times over by a package of measures to hit the rich. They include higher stamp duty on homes worth more than £2m and a levy on such homes held in companies, which the Liberal Democrats hailed as big steps towards their "mansion tax".

The sting in the Budget's tail was for about 4.4 million of Britain's 10.5 million pensioners. Mr Osborne unexpectedly announced plans to freeze their age-related allowances to simplify the tax system and insisted there would be no cash losers.

However, pensioners paying income tax will lose out because their allowances will not keep pace with inflation. Treasury officials confirmed that current pensioners would lose an average £63 a year and people who have not yet reached the age of 65 will lose £197 a year when they do. The move was immediately condemned as a "granny tax" that would raise £3bn for over the next four years.

In another surprise, the Chancellor signalled another squeeze on the welfare budget in the next public spending round, only weeks after the contentious Welfare Reform Act became law. He warned that to avoid deeper cuts in other areas, welfare payments would have to be reduced by more than £10bn a year in 2016-17.

The widely-trailed Budget was the product of a heated negotiation between the two Coalition parties. The Liberal Democrats hailed the rise in personal tax allowances, their signature policy, and claimed they had won the "tycoon tax" they had demanded.

Nick Clegg told party activists: "This is a Budget every Liberal can be proud of. We're proud of the fact that we have delivered the largest increase in the personal allowance ever. We are proud of the fact we have halved the tax bill for people working on the minimum wage. We are very proud that we are taking over two million people out of paying income tax altogether."

Liberal Democrats admitted privately that they could face criticism for allowing Mr Osborne to cut the tax rate paid by the top 1 per cent of earners. But they said they had stopped him abolishing the top rate entirely, which would have left 40p as the highest band, and had vetoed moves backed by Mr Cameron to allow firms to "hire and fire workers at will" by cutting workplace rights.

Mr Osborne disappointed some Tory MPs by failing to outline a timetable for the 45p top rate to be cut to 40p. His aides said the 45p rate was not "temporary" – suggesting that it may prove too controversial to try to remove it before the next election.

The Coalition parties insisted the Budget was "for millions, not millionaires". But Labour is convinced the cut in the 50p rate will backfire on the Government, claiming today's move would result in 14,000 millionaires getting a tax cut of £40,000 a year.

Ed Miliband, the Labour leader, told the Commons: "After today's Budget, millions will be paying more while millionaires pay less. It's a millionaires' Budget that squeezes the middle. All the Chancellor is doing for ordinary families is giving with one hand and taking far more away with the other."

The Resolution Foundation, a think- tank which specialises in the "squeezed middle", said the best way to help this group would have been to reverse £1.6bn of cuts to tax credits taking effect next month rather than raise the personal tax allowance.

"People on low and middle incomes were mostly targeted by the Chancellor's rhetoric," said Gavin Kelly, its chief executive. "It is astonishing that the Coalition has chosen to prioritise a cut in income taxes on the rich at a time when low to middle-income families are seeing their standard of living fall and are struggling to afford day-to-day essentials."

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
Mark Wright and Bianca Miller in the final of The Apprentice
tvMark Wright and Bianca Miller fight for Lord Sugar's investment
Arts and Entertainment
X Factor winner Ben Haenow has scored his first Christmas number one
music
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special
tv
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
News
Claudia Winkleman and co-host Tess Daly at the Strictly Come Dancing final
people
News
i100
Extras
indybest
News
peopleLiam Williams posted photo of himself dressed as Wilfried Bony
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
Arts and Entertainment
The Apprentice finalists Mark Wright and Bianca Miller
tvBut who should win The Apprentice?
News
The monkey made several attempts to revive his friend before he regained consciousness
video
Extras
indybest
News
Elton John and David Furnish will marry on 21 December 2014
peopleSinger posts pictures of nuptials throughout the day
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: National Account Manager / Key Account Sales

£30000 - £35000 per annum: Recruitment Genius: An opportunity has arisen for a...

Recruitment Genius: Operations Manager

£30000 - £35000 per annum: Recruitment Genius: An exciting opportunity to join...

Recruitment Genius: Recruitment Consultant

£30000 - £35000 per annum: Recruitment Genius: We have an excellent role for a...

Recruitment Genius: IT Support Analyst - Bristol

Negotiable: Recruitment Genius: An IT Support Analyst is required to join the ...

Day In a Page

The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

Marian Keyes

The author on her pre-approved Christmas, true love's parking implications and living in the moment
Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

Bill Granger's Christmas Eve fish feast

Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick