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Osborne hands out tax cuts - for companies

VAT up 20% Higher rate tax threshold frozen

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ToryDem chancellor George Osborne handed a massive tax boost to business today in his first budget.

But the move will be cold comfort for public sector suppliers, banks or video games developers.

As expected VAT goes up from 17.5 per cent to 20 per cent on 4 January next year.

Corporation tax will be cut by a penny every year for the next three years - bringing it down to 24 per cent.

Small companies tax will also be cut to 20 per cent - helping 850,000 firms. Guarantee schemes for small business financing will be extended. These measures will be welcomed by the Forum of Private Business, which campaigned for both.

Tax relief for UK video game companies has been cancelled.

Osborne said the threshold at which employers pay National Insurance will be raised by £21 a week, to help protect job creation. Start-up companies will be exempt from the first £5,000 of employer NI contributions.

One sector that will feel pain is the banks. Osborne promised action against the banks which started the credit crisis. He said they should be taxed according to the risks they take.

From January 2011 a bank levy will introduced to be paid on their balance sheets according to risks taken, and this will eventually bring in £2bn a year.

Public sector suppliers will be feeling gloomy as well. Osborne has already scrapped a number of projects agreed in the last days of the Labour government.

Today he said that public sector wages will be frozen for two years. But this will be offset for lower-paid workers on less than £21,000 a year. The Armed Forces operational allowance is doubled.

Top public sector wages will be capped.

Osborne promised to protect investment in digital infrastructure.

Capital gains tax is set at 10 per cent for the first £5m - increased from £2m - to encourage entrepreneurs. Higher-rate taxpayers will pay capital gains tax at 28 per cent from midnight.

Osborne also announced an increase of £1,000 to personal allowance - the amount you earn without paying income tax - which now stands at £7,475. However, this will be clawed back from higher rate tax payers, who will also see their threshold frozen till 2013.

Elsewhere, tax credits would be better targeted - reducing payments to families earning over £40,000.

The health and pregnancy grants will be cut and SureStart will be available only for first children, and child benefit will be frozen for three years.

Disability living allowances will be medically assessed from 2013. Housing benefit, now £21bn a year, will be restricted and reduced and set a maximum payment.

These measures should deliver £11bn in savings by 2015.

Cigarettes and alcohol avoid tax rises for now, although this may change in autumn.

The rise in cider tax has been reversed.

From April next year the basic state pension will be re-linked to earnings.

More from the Treasury is available here, and on Twitter here. The full speech is available here. ®

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