Chancellor moves to put 'fuel in tank' of UK economy

Britain's Chancellor George Osborne slapped a surprise £2 billion ($4.3 billion) annual tax on North Sea oil companies to enable him to halt the spiralling cost of petrol and bring some relief to millions whose living standards are being squeezed.

In his second Budget, Osborne declared that he would "put fuel in the tank of the British economy" by unveiling measures to boost growth, including a 2 per cent cut in corporation tax for business next month instead of the planned 1 per cent reduction.

He avoided talk of spending cuts and painted a rosy picture of an economy once the deficit had been tackled.

Osborne ruled out a change of course but was unable to escape renewed charges that the cuts he announced last year are a gamble that might not pay off.

The independent Office for Budgetary Responsibility provided a reality check by downgrading its forecast for growth this year from 2.1 per cent to 1.7 per cent.

Although he had little money to play with in a fiscally neutral package, the Chancellor raided the coffers of oil firms in a Budget aimed at families hurt by inflation running much faster than wages - the "squeezed middle" targeted by Labour.

He delayed the 5p-a-litre rise in fuel duty due next month until next year, cut the price by 1p from 6pm last night and cancelled the inflation-plus increases under the fuel duty escalator until the next general election. However, the escalator will be reintroduced if the price of oil - currently around US$115 a barrel - falls below US$75.

His "fair fuel stabiliser" delighted Tory MPs as it went further than they had expected. But oil companies warned that investment in the North Sea would be put at risk even though the rise in the global oil price has swollen their profits. Labour warned that oil firms would merely recoup the cost of the levy by raising pump prices.

Osborne was accused of giving with one hand and taking with another after he announced a £630 rise, to £8105, in the amount of money people can earn without paying income tax from April next year.

This will take 260,000 people out of tax and reduce tax bills paid by 25 million people by £48 on average. The move was the main demand from the Liberal Democrats.

Osborne raised the hopes of business leaders and Tory MPs that the 50p top rate of tax on earnings over £150,000 a year would be shortlived. He said he regarded it as temporary, and promised a detailed review of whether it was raising as much as the Treasury had forecast.

If this finds evidence that the rich are avoiding it, that could give him the cover to scrap it.

Former Chancellor Alistair Darling introduced the 50p rate as a temporary measure to help reduce the deficit, but Labour's policy now is to keep it.

Allies of Osborne said the winners from yesterday's measures were motorists and taxpayers, and listed the losers as oil companies, tax avoiders targeted in a new crackdown, and carbon-intensive industries who would be hit by new green taxes - although these will add £6 a year to domestic energy bills in the short term.

- Independent