UK Ups VAT, Introduces Bank Levy

Britain's Chancellor of the Exchequer George Osborne preparing for his first Budget in his office in No11 Downing, June 22, 2010 before leaving for the House of Commons to present an emergency budget. Photo by EPA/BGNES

VAT is to rise from 17.5% to 20% in January after Britain’s Finance Minister George Osborne unveiled the biggest package of tax increases and spending cuts in a generation, BBC reported.

He said his "tough but fair" Budget was "unavoidable" although he told MPs in the Commons there would be no extra tax on alcohol, tobacco and fuel.

Child benefit will be frozen for three years, public sector pay frozen and 25% cut from government department budgets.

Labour said the Budget was "reckless" and would "throw people out of work".

Acting Labour leader Harriet Harman said it would stifle growth and hit hardest "those who can least afford it".

But Osborne laid the blame for the state of the nation's finances squarely at the door of the previous Labour government, saying: "The years of debt and spending make this unavoidable."

He promised to balance Britain's books within five years - faster than Labour was planning, with the bulk of the savings to come from cuts to benefits and public services rather than tax

Tax credits will be cut for families earning more than GBP 40,000 a year - and there will be a two year pay freeze for public servants paid more than GBP 21,000, with those earning less all getting a GBP 250 rise.

In addition to the VAT increase, which Mr Osborne said would raise GBP 13bn a year, capital gains tax will be increased to 28% for top rate taxpayers - less than the 50% some Conservative backbenchers had feared.

From January 2011, the Government will introduce a bank levy, which will apply to the balance sheets of UK banks and building societies and the UK operations of foreign banks.

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