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News : UK Economy Last Updated: Mar 24, 2011 - 5:43 AM

British Chancellor announces cuts in corporation tax in Budget speech; 2011 deficit will be 9.9% of GDP
By Finfacts Team
Mar 23, 2011 - 2:49 PM

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The government quadrilateral or 'quad', comprising Prime Minister David Cameron, Deputy Prime Minister Nick Clegg, Chancellor George Osborne and Chief Secretary Danny Alexander, meet in Downing Street on Tuesday 22 March 2011 to discuss the 2011 Budget ahead of the Chancellor's statement to Parliament at 12:30pm on Wednesday.

British Chancellor George Osborne today announced cuts in the country's corporation tax rates in his Budget speech in the House of Commons. The 2011 budget deficit will be 9.9% of GDP (gross domestic product).

He said he would cut the corporation tax rate to 26% from April - - a one-point cut to 27% had already been planned.

In addition, the Chancellor said the rate would be reduced one point in each of the following three years, bringing it to 23%.

He said in his speech that other countries had been "quite deliberately" making their tax systems more competitive to attract multinational companies.

The UK's bank levy rate is to be adjusted to offset the cut in corporation tax.

Osborne also cancelled a 4p rise in fuel duty in what he has termed his "budget for growth."

He abolished Labour's fuel duty escalator and cut duty by a further 1p - - all financed by a £2bn tax on oil companies.

He also froze alcohol duties and air duty - - but raised tobacco tax by 2%.

The Chancellor told MPs that Britain's economy will grow this year at a slower rate than previously expected.

The independent Office for Budgetary Responsibility (OBR) cut its growth forecast for 2011 from 2.1% to 1.7% due to higher inflation and the shrinkage of the economy in Q4 2010. Inflation is expected to remain at 4-5% this year, 2.5% next year and 2% the following year.

Osborne said:
"Last year's emergency Budget was about rescuing the nation's finances, and paying for the mistakes of the past.

"Today's Budget is about reforming the nation's economy, so that we have enduring growth and jobs in the future.

"And it's about doing what we can to help families with the cost of living and the high oil price."

Main Measures

  • 1 penny per litre fuel duty rise due in April to be frozen
  • Further £600 increase in personal tax allowance from April 2012
  • Financial help for 10,000 first-time buyers to get on property ladder
  • Forecast for how much UK economy will grow in 2011 to be downgraded
  • New tax on private jet flights

Osborne expanded the amount people can earn before paying tax by around £600 from April 2012 - - saving 25m people about £45 a year.

The Chancellor also announced an extension of plans to establish Enterprise Zones in some of the most deprived areas of England - -  from 10 areas to 21.

The areas will benefit from less planning restrictions and discounted business rates to encourage job creation.

Britain's record budget deficit is not shrinking faster than expected - - as some had predicted - - due to inflation.

"The size of the task of repairing Britain's finances is unchanged," said Osborne.

The OBR is now forecasting a deficit of £122bn next year (7.9% of GDP), compared to the £117bn previously forecast, while by 2015-16 it will still be £29bn as against the £18bn that had been expected.

Public sector net borrowing is expected to come in at £145.9bn (or 9.9% of GDP) in 2010-11. This is £2.6bn less than forecast in November, largely reflecting lower spending.

Budget Documents

Office of Budget Responsibility

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© Copyright 2011 by Finfacts.com

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