Darling's 'fair tax' plan draws poll's battle lines

LONDON - Alistair Darling drew the battle lines for a May 6 general election in Britain when he announced a "fair tax" package in which higher stamp duty for people who buy homes worth £1 million ($2.1 million) will help first-time buyers on to the property ladder.

The Chancellor of the Exchequer used his Budget to raise stamp duty on homes costing £1 million from 4 to 5 per cent, adding £10,000 to the cost of such a property.

The proceeds will finance the abolition for two years of stamp duty on a flat or house costing less than £250,000 for first-time buyers. Nine out of 10 of them will get a stamp duty "holiday".

The Tories said they would not reverse the changes if they won power.

Although Labour MPs cheered the move, many were disappointed Darling shied away from the populist "Robin Hood tax" on banks that pressure groups had demanded.

The Chancellor froze inheritance tax at £325,000 for the next four years - a deliberate contrast with the Tories' flagship pledge to raise it to £1 million.

His pre-election Budget paved the way for Labour to issue a hard-hitting warning that the Tories would raise the VAT sales tax from 17.5 to 20 per cent if they win power.

The move creates a headache for the Conservatives, who say they have no plans to increase VAT but are unlikely to rule out the option. They accused Darling of smuggling out a £2.2 billion "stealth tax" for 30 million people by freezing tax allowances without even mentioning it in his 58-minute speech. They said a basic rate taxpayer would be £48 a year worse off, and higher-rate taxpayers would lose more.

"That tells you everything you need to know about Labour's cynical tricks and its priorities," said the shadow Chancellor, George Osborne. "The bill for Gordon Brown's economic mistakes is going to be paid by every working family in Britain."

The Conservatives also accused Darling of a sleight of hand after Whitehall departments issued a list of £11 billion of efficiency savings that did not feature in his speech.

The Opposition claimed this left a gap of £27 billion of unidentified spending cuts in Labour's proposals. Labour put the sum at £18 billion, saying the cuts would be found in a spending review this northern autumn.

Darling used lower-than-expected borrowing of £167 billion in the current financial year to reduce the huge public finances deficit.

The Chancellor trumpeted a one-off, £2.5 billion "growth package" to secure economic recovery, with measures to help small firms, create jobs, boost infrastructure projects and create an extra 20,000 university places.

The only giveaway was to phase in over nine months the 3p-a-litre rise in fuel duty due to take effect next month. It will now rise by 1p before the election.

There was no such cheer for smokers or drinkers, with 15p added to a packet of cigarettes, 36p on a bottle of whisky, 10p on a bottle of wine, 2p on a pint of beer and a punitive £2 on a bottle of super-strength cider in a bid to combat antisocial behaviour.

Darling drew another election dividing line as he claimed Labour's "active government" approach had prevented the recession from turning into depression. "We didn't get through this by chance," he said.

Ministers hope the public will get Labour's message that a Tory Government promising to cut spending immediately would not nurture the recovery, putting jobs at risk.

But the Conservative leader, David Cameron, said: "Labour has made a complete mess of the British economy and they are doing nothing to clean it up."

Business leaders and the City criticised the absence of detailed spending cuts.

Richard Lambert, the director-general of the Confederation of British Industry, said: "This was a clever, political Budget. [But] anxiety remains on how the deficit is going to be paid." He said the growth forecasts were "on the optimistic side".

Michael Saunders, of Citigroup, said: "With no credible fiscal tightening in place, the UK will likely go into the election with major medium-term fiscal uncertainties."

Gerard Lyons, at Standard Chartered, described it as "a do-nothing Budget that had shades of Nero about it".

WHAT'S IN IT

Housing - Stamp duty limit for first-time buyers doubled to £250,000 for this year. Funded by increase in stamp duty to 5pc on homes worth more than £1 million.

Inheritance tax - Threshold frozen at £325,000 for four years.

Savings - Annual ISA limit (£10,200 from next month) to increase annually in line with inflation.

Fuel duty - 3p increase will be staggered - 1p in April, further 1p rise in October, rest in January.

Sin taxes - Duty on cider jumps by 10 per cent above inflation from Monday, when duty on beer, wine and spirits rises 1 per cent. Alcohol duties will rise by 2 per cent above inflation for two further years from 2013. Tobacco duty rises by 1 per cent above inflation from today, increasing by 2 per cent in real terms each year until 2014.

- INDEPENDENT