George Osborne has used his 2012 Budget to cut taxes at both ends of society, by raising the threshold at which people start to pay income tax and by cutting the 50p top rate of tax for the wealthy.
The Chancellor announced that people will not have to pay income tax on any earnings below £9,205 which he said would leave millions of working people £220 better off every year.
The "further and faster" acceleration towards a £10,000 income tax threshold can be seen as an attempt to offset a potentially unpopular decision to give wealthier Britons a tax cut as well.
Osborne unveiled a cut in the top rate of tax from 50p to 45p on earnings over £150,000 a year, a move sought by many Tory backbenchers, but the change will not come into force for a year.
Speaking in the House of Commons on Wednesday, Osborne said his Budget would help create a tax system "where millions of the lowest paid are lifted out of tax all together" as well as one "more competitive for business than any other major economy in the world".
He said the the 50p tax rates had "caused massive distortions" as £16bn of income was deliberately shifted into the previous tax year at a cost to the taxpayer of £1bn.
"No chancellor can justify a tax rate that damages our economy and raises next to nothing it is a simple as that," he said.
"Thanks to the other new taxes on the rich i have announced to day we will be getting five times more money every year from the wealthiest in our society."
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The tax cuts are to be funded by stiffer penalties on stamp duty for the most expensive homes, along with making it harder for the wealthy to avoid paying the taxman.
"Most wealthy people pay their taxes and without them we could not afford the public sieves upon which this country depends," he said.
But Osborne said tax evasion and excessive avoidance was "morally repugnant" and the government would take action to curb it.
And he said stamp duty on properties worth over £2m would now be 7%. "If you buy a property in Britain for residential purposes, we will expect stamp duty to be paid," he said.
The move to raise the income tax threshold was a key Liberal Democrat manifesto pledge and the party are likely to take credit for today's decision.
Ed Miliband attacked the decision to axe the 50p tax rate at a time when public spending was being cut.
"We know the driving ambition of this budget for the chancellor was to deliver a tax cut for people earning over £150,000," he said.
"Let me tell him, every time in the future he tries to justify an unfair decision by saying times are tough, we’ll remind him: He’s the man who chose to spend millions of pounds on those who need it least."
And the Labour leader suggested the government front bench would benefit personally from the decision. "Hands up in the Cabinet if you are going to benefit from the income tax cut?" he asked.
"For ordinary families it's hurting but it's not working. This government has been cutting too far and too fast."
He added that the Budget was: "Unfair, out of touch, for the few not the many, an unfair Budget built on economic failure, an unfair budget from the same old Tories."
Osborne also revealed the Office for Budget Responsibility (OBR) had forecast that Britain is set to avoid second recession with growth forecast for this year revised upwards to 0.8%, 2.7% in 2014 and 3% in 2015-2016. And the chancellor said the OBR expected one million more jobs to be created over the next five years.
This Budget was possibly the most leaked in history, with a large number of the measures trailed in the press over the past week and there were few surprises today.
Among the other measures announced by the chancellor were tax breaks for the film and video game industry, council tax relief for members of the British armed forces, a 1% cut in corporation tax and the examination of regional pay rates for public sector workers and a 5% rise in duty on cigarettes.
He also watered down proposals to cut child benefit from high earners. Osborne had planned to take it away from people earning around £40,000, but this was raised to £50,000.
The chancellor also said the withdrawal would be tapered so 1% of child benefit would be taken away for every £100 a parent earned over £50,000. Only those who earn more than £60,000 will lose it completely.
21/03/2012 17:37 GMT
Should it be #grandpatax instead of #grannytax?
@ guywalters :
It's a #grandpatax as well you know
21/03/2012 17:31 GMT
5m set to lose out over #grannytax
@ joyless60 :
#grannytax Dot Gibson gen sec of Nat pensioners convention 5m will be worse off. #bbcnewschannel
Passionate advocate for pensioners
21/03/2012 17:27 GMT
Were @BBCNormanS's comments on the #grannytax a sign of BBC impartiality?
@ eljmayes :
The BBC's Norman Smith has just stated that his mum wouldn't be impressed by the supposed #GrannyTax- bias towards Labour?
21/03/2012 17:24 GMT
@BBCNormanS gets personal on the #grannytax
@ CallumJonesBlog :
@BBCNormanS on Treasury's follow up to #grannytax: "my mum won't be happy with that argument"
21/03/2012 17:22 GMT
If Osborne hadn't leaked - would #grannytax be so talked about?
@ anthonypainter :
The irony is that by leaking everything else, the Coalition has focused attention on the #grannytax ! Genius. #budget2012
21/03/2012 17:19 GMT
CCHQ bring in help for defence over #grannytax
@ RicHolden :
IoD: ‘This budget brings three items of good news for pensions’ http://t.co/gbouGq5y #Budget2012
21/03/2012 17:09 GMT
Should the LibDems put "yellow water" between themselves and the Tories on #grannytax?
@ MirrorJames :
Top Lib Dems distancing themselves from 50p - should try putting some yellow water between themselves and the #grannytax #Budget2012
21/03/2012 17:03 GMT
Is Danny Alexander ashamed of the #grannytax?
@ 1957AJB :
Danny Alexander ashamed of #grannytax http://t.co/gjwtNPEQ And so he should be
21/03/2012 17:02 GMT
Is the #grannytax fuss overblown?
@ gordoh :
Personal view: #grannytax fuss is overblown. Hits some but impact modest. Too many reactions verging on hyperbole. #budget2012
21/03/2012 16:59 GMT
Is the #grannytax actually what it says?
@ faisalislam :
Its not really a #grannytax though is it? The HMRC costing says 58% paid by male over-65s.