OSBORNE’S BIG BENEFIT FREEZE

Budget to signal election pledge to cut £12bn from welfare

SLASHING £12billion from the nation’s bloated benefits bill will be at the heart of the Tory pitch for a second term in office. George Osborne’s pre-election budget next week will be a ‘steady as you go’ exercise with the emphasis on sustaining growth and reducing the deficit.

But the Chancellor is planning to use a section of his speech – kept separate from measures agreed by the coalition – to highlight proposals to ease the income tax burden.

Tory sources say other measures that appear ‘nailed on’ for their election manifesto include:

Restricting child benefit to three children for new claimants and extending a freeze on benefit increases;

Cutting the overall cap on welfare claims to £23,000 per household from £26,000 now;

Under-25s to lose their right to housing benefit and jobless payouts if they refuse offers of work, training or education.

The measures would help Mr Osborne find the £30billion he needs to erase the budget deficit by the end of the next Parliament in 2019.

Treasury officials believe £5billion can be raised from a crackdown on tax avoidance and evasion on top of the £12billion annual welfare saving. The proposals undermine Labour’s claim that the Conservatives will balance the books through apocalyptic Whitehall cuts.

The Tories say they will raise the point at

which people pay higher rate income tax to £50,000 by the end of the next Parliament – lifting hundreds of thousands of middle class professionals out of the 40p band.

Another objective is to increase the personal allowance to £12,500 a year.

The Chancellor is also thought to be considering granting pensioners the right to take money out of their retirement funds.

The move would be a radical extension of his decision last year to free retirees from having to buy what are often poor-value annuities with their pension savings.

Although public borrowing for 201415 is expected to come at below the £91billion projected in the autumn statement last December, the Chancellor will have little wriggle room for electoral giveaways.

His Liberal Democrat coalition partners are reluctant to allow him to use the Budget as a launch-pad for the Tory election campaign.

However, another tax break for millions of workers is expected with a hike in the personal tax allowance, which is already due to rise to £10,600 next month.

It is expected that the Chancellor will take the opportunity to announce a full review of the business rates system.

Retailers have long been pushing for reform of rates – which have existed in various forms since Tudor times – to ease the pressure on the high street.

Sources suggest that moving away from a charge based on the rateable value of a commercial property to a modern alternative – such as a sales tax – is one option.

Critics of the existing system say that it is absurd in the internet age to base company taxes on the physical space they occupy.

There is speculation that the Chancellor will use his budget to unveil populist measures such as a cut in the duty on beer and wine.

Key tax avoidance and evasion measures to be announced by the Chancellor will include an end to ‘umbrella’ arrange- ments. One scheme – used by collapsed delivery firm City Link – allows companies to escape corporate and national insurance tax by employing their workforce as freelance sub-contractors.

Mr Osborne is planning heavy penalties on tax advisers, including the big accounting firms, banks and others that set up and promote tax avoidance scams.

Changes in the tax regime will make it unlawful for individuals or companies to raise new debts solely for the purpose of writing off the interest payments on that debt against tax. This technique is widely used by private equity firms.

The budget will herald the final closure of the loopholes that allow companies and individuals to hide their tax affairs in secretive overseas jurisdictions.

So far more than 90 countries – including Switzerland, Luxembourg and the British crown territories such as the Caymans – have signed up to a convention that requires them to be fully transparent and hand over the details of tax residents to HMRC.

Mr Osborne plans full implementation of the so- called ‘Google’ tax. The HMRC will assess the British turnover of low tax paying companies such as Starbucks and Amazon and will tax them proportionally on the earnings in the UK.

‘Tax avoidance and evasion’