VAT rise dominates budget

VAT will rise from 17.5 to 20 per cent from 4 January 2011, the chancellor George Osborne has announced during his first budget speech this afternoon.

The move provoked an outcry from the Labour benches in the Commons and immediate attacks on the Liberal Democrats, who had warned against a Tory 'VAT bombshell'.

The government will increase the standard rate of insurance premium tax to six per cent and the higher rate to 20 per cent from the same date.

However, the widely trailed jump in personal capital gains tax was smaller than expected, increasing from 18 to 28 per cent for higher earners from midnight.

Nicola Plant, partner in the private client team at Thomas Eggar, said: 'Many individuals with property and assets that might be subject to the new higher rate of tax have spent the last 12 months disposing of assets at the lower rate.

'Capital gains tax is something that generally only affects those who are better off and, as such, if they've missed the opportunity to sell now, provided they don't need the cash, they can simply hold onto assets until fortunes change.'

The income tax threshold for those under 65 will rise by £1,000 to £7,475 next year.

Next year will also see a two-year pay freeze for public sector workers earning over £21,000 and the government has said it will 'work in partnership' with local authorities to achieve a council tax freeze for the next tax year.

Corporation tax will be cut, though not by as much as some Tories had wanted. It will be reduced from 28 to 24 per cent in the course of the next four years from April 2011.

There will also be a national insurance holiday for new businesses with up to ten workers setting up outside London and the South East, and enabling them to save up to £5,000 in their first year.