As it happened: Osborne’s austerity Budget

“The Budget puts in place our promise of a new tax on banks, ensuring that they help to pay to clear up the mess left by the financial crisis.

“Top earners will pay a full 10 per cent more in Capital Gains Tax than under Labour, with no loopholes or tapers or get-out clauses. That change helps ensure those with the broadest shoulders take the greatest strain.

“We will guarantee that pensioners get a fair deal, putting into effect the Liberal Democrat manifesto commitment for a “triple lock”, so state pensions rise every year in line with earnings, inflation, or by 2.5 per cent, whichever is the highest. Never again will pensioners be allowed to fall behind.

“The Coalition Government will not let regions, towns or cities that depend heavily on the public sector be forgotten. That’s why this Budget establishes a regional growth fund to ensure those parts of the country get meaningful support to help create jobs and opportunities for all.

“Tackling Child Poverty remains at the heart of the government’s approach. So while we have decided to cut child tax credits for those who can most afford it, we have increased tax credits for the poorest families and put up to £2 billion into child tax credits to help ensure children of all backgrounds get a fair start in life.”

1633 BST: How independent is Sir Alan Budd? Is the Office of Budget Responsibility really telling it like it is, asks Peter Spencer, chief economic adviser to the influential Ernst & Young ITEM club. He suspects that the revised growth forecasts are far too rosy.

“The boost to growth in later years from lower borrowing does not look unreasonable, but the short-term effects are staggeringly small,” says Mr Spencer.

“For example, in 2011, with VAT rising to 20 per cent and current spending around £10bn lower than the pre-Budget forecast, GDP growth is estimated to be just 0.3 percentage points lower. It seems that the OBR is underestimating the impact of this significant fiscal tightening.

“In particular, the OBR appears to have assumed that consumers will react to having lower incomes by simply saving less, rather than making any significant adjustments to their spending, an assumption which looks highly questionable.”

1627 BST: Fuel duty didn’t rise but the cost of petrol at the pumps is still going to go up, writes Times energy editor Robin Pagnamenta.

Petrol prices are on track to hit 130p per litre within six months, retailers warned today, after the Chancellor refused to scrap a 2p per litre rise in duty while announcing fresh increases in VAT.

1615 BST: Mr Osborne’s assault on the public finances has been calculated to impress the international credit ratings agencies, so that Britain does not lose its cherished AAA rating and continues to be able to borrow at comparatively low interest rates.

So how did it go down? Standard & Poor is keeping its powder dry, saying that it’s a complex budget and they’ll have to analyse the details before deciding on the UK’s credit rating.

Fitch is more complementary, saying that the budget should “materially strengthen confidence” in UK public finances and the country’s AAA credit rating - if delivered upon.

1600 BST: Read the Budget for yourself here.

1552 BST: Back to Capital Gains Tax, where tax accountant Tony Bernstein of HW Fisher & Co has noticed that the exemption for lower rate tax payers may not be what it seems.

“On the surface, it appears that the 28 per cent rate will only affect higher earners whereas, in reality, people on lower incomes could also easily be caught by it,” Mr Bernstein warns. “The 18 per cent CGT rate for people on basic rate tax will increase to 28 per cent if the gain, when added to their income, pushes them over the threshold into the higher rates of tax.”

1541 BST: Millions of families waiting for a clear explanation of Mr Osborne’s fiendishly technical changes to the child tax credit system have little reason to celebrate, it appears.

Social affairs correspondent Rosie Bennett says that families on lower middle earnings are being made to pay for the Chancellor’s squeamishness about ending universal child benefit.

George Osborne shied away from removing child benefit from the highest earners and instead took the axe to tax credits to find budget savings.

Families with a combined income of £40,000 or more will lose all or part of their £545 a year tax credit allowance, while those earning between £16,000 and £40,000 will find their cash is withdrawn at a higher rate the more they earn.

More details on rates and allowances here and on welfare changes here.

1525 BST: Pensioners, rejoice - you are the only substantial winners from the Budget. “The decision to increase the state pension in line with average earnings rather than inflation is expected to lead to a considerable improvement in the real value of the state pension in the coming years,” writes personal finance reporter James Charles.

“Mr Osborne also announced that compulsory annuitisation would be scrapped from April next year, ending the existing rules that requires pensioners to buy an annuilty with their pension pot by the age of 75.”

On the other hand, the Tories are looking at raising the retirement age to 66 as early as 2016 - 16 years sooner than Labour proposed - a move that would save the Treasury £13bn a year.

1510 BST: Times comment writer Oliver Kamm says that the nearest historical comparison to Mr Osborne’s 2010 Budget is the sharply contractionary Budget of Sir Geoffrey Howe in 1981. Both raised VAT and taxed the banks, but Mr Osborne’s income tax policies are kinder on the poor than Lady Thatcher’s were.

1503 BST: Your budget reader - we summarise what everyone else has to say about the Budget so that you don’t have to trawl around.

We particularly like Alastair Campbell’s ascerbic comment about where power really lies: “Osborne on message… Clegg on nodding dog duty”.

1446 BST: The Treasury has begun to circulate briefing papers that summarise what the Chancellor said, and pad it out with some extra detail.

Here is what appears to be a nasty sting in the tail buried in the small print (didn’t you say you weren’t going to do that, George?):

Income tax Budget announces that in 2011-12, the income tax personal allowance for under 65s will be increased by £1,000 in cash terms, taking it from £6,475 in 2010-11 to £7,475 in 2011-12. To ensure that the majority of higher rate taxpayers will pay the same total level of income tax and National Insurance Contributions (NICs) as previously planned, the Government will also reduce the basic rate limit for tax by £2,500, and the upper earnings and profits limits for NICs by £1,650, based on current estimates of the Retail Prices Index (RPI).

So thousands of taxpayers who are currently still paying lower rate income tax will next year find themselves pushed into the higher rate tax bracket.

1440 BST: Jill Sherman, the Times’s Whitehall correspondent, warns that the unexpectedly harsh curbs on public sector pay will lead to strikes. Hundreds of thousands of state employees, including social workers and librarians, have already had their pay frozen for the last year - today’s announcement will leave them three years without a raise.

Over four million public sector workers will suffer a pay freeze for the next two years, 12 months longer than expected, in a decision that seems certain to fuel industrial unrest.

The Chancellor said that all those earning over £21,000 would receive no pay rise for 24 months from next April, although those on the lowest incomes will receive some help.

The 1.7 million earning less than £21,000 - 28 per cent of all public sector workers - will get a flat rate increase of £250 which favour the lowest paid such as ancillary workers, care assistants and social workers.

George Osborne announced at the Conservative Party Conference last October that pay would be frozen for one year for all those earning over £18,000 - a pledge which was contained in the Tory Manifesto.

His decision to extend the pain for two years has been only partly sugared by the move to offer protection to those earning less than £21,000. But for some public sector workers, including local council staff, librarians and social workers, the announcement will mean a three year freeze as they got no pay rises this year either.

1435 BST: A kind of considering silence has settled on the City. The FTSE-100 index at 1.45pm was down 65.40 at 5233.71, almost exactly where it was before Mr Osborne stood up.

1410 BST: Picking over the bones of the Budget has begun. Here is an at-a-glance guide to the main announcements. Danny Finkelstein explains on Comment Central on why VAT had to rise.

Grainne Gilmore reports on the modest 10 per cent rise in CGT for higher rate taxpayers.

1345 BST: The first reaction from economic commentators is positive. Hetal Mehta, senior economic advisor to the Ernst & Young ITEM Club, comments: “Overall, it was a well crafted and balanced Budget.

“This package is much tighter than most had envisaged, with an extra tightening worth £40 billion a year by the end of the Parliament on top of the £44 billion built into the previous government’s fiscal plan. We feel that the objective to eliminate the cyclically-adjusted current deficit by 2014-15 is quite ambitious, but commendable.

“With fiscal policy much tighter, one would expect a slower economic expansion, which is what the revised OBR projections show. This consistency is heartening and safeguards the credibility of the new framework. The pace of tightening announced should placate the markets.”

Ms Mehta points out however that until we know the details of spending cuts it is hard to say whether Mr Osborne will meet his self-imposed targets. Spending will have to fall by a quarter in most government departments, she warns apocalyptically.

“While the overall borrowing projections give us an idea of how fast the government intends to tighten policy in the coming years, without the publication of the Departmental Expenditure Limits, it is difficult to assess the credibility of that intention. Most departments will face a 25 per cent cut, while others, notably health and education are likely to fare better, but we cannot say for sure at this stage.”

1330 BST: Mr Osborne commends his Budget to the house with the usual remarks about having been tough but fair and having protected the vulnerable.

Harriet Harman, the acting Labour leader, responds.

“This is a Tory budget that will throw people out of work, hold back economic growth and harm vital public services,” she says, in the curiously slow, ranting tones that she uses at the Dispatch Box. “It’s his first budget but the same old Tories, hitting hardest at those who can least afford it.”

She throws the first stone at Mr Clegg, accusing him of acting as a figleaf for the Tories and betraying everything his party stands for.

“(The Budget) includes things that the Liberal Democrats have always fought against - surely they cannot vote for it? How could they let down everyone who voted for them?” Ms Harman demands.

1327 BST: The Chancellor promised to protect children but his gesture, when it comes, seems a little abstruse - he says he is going to increase the child element of the child tax credit by £150. This is apparently going to cost £2 billion, so it must be more substantial than its sounds.

1326 BST: Now the bit about protecting pensioners - he is going to restore the link between the basic state pension and average earnings from next year.

1324 BST: After all the bad news, a little bit of good. As widely trailed, the personal allowance for income tax is to rise by £1,000, from £6,475 to £7,475, taking 880,000 of the lowest paid out of income tax altogether and saving lower rate taxpayers £200 a year.

1323 BST: Post your reaction to the Budget here

1322 BST: Nick Clegg is looking very grim. He knows the torrent of opprobrium that is about to hit him from Labour over the VAT increase. Not to mention from some of his own backbenchers.

1319 BST: The Chancellor has partly kept his promise to the Lib Dems to raise Capital Gains Tax. Higher rate taxpayers will see the rate of CGT raised to 28 per cent at midnight. That is stiall a long way short of the rise to 40 per cent and 50 per cent, in line with the higher rates of income tax, that the Lib Dems wanted and many commentators had expected. And lower rate taxpayers will not be affected; for them, CGT will remain at 18 per cent.

1318 BST: But, hey! Labour’s 10 per cent increase in tax on strong cider is not going ahead, “so we can celebrate England’s progress in the World Cup, or drown our sorrows,” says Mr Osborne.

And duty on alcohol, tobacco and fuel have not been increased.

1315 BST: Oh boy, he did it. VAT is going up to 20 per cent from January next year. This produces the biggest roars of outrage so far from MPs, mainly from the Labour benches, forcing Sir Alan to intervene to quiet the House.

“The years of spending make this unavoidable,” says Mr Osborne defiantly.

The increase will raise £13bn a year for the Treasury, he adds. But currently zero-rated items like food and children’s clothes will remain zero-rated.

1313 BST: Council tax is to be frozen for one year, as widely trailed.

1312 BST: The merest glint of good news. The planned tax on telephone landlines has been scrapped

1311 BST: Mr Osborne says that a bank levy will be introduced from January 2011, raising more than £2bn a year. SImilar levies are to be introduced in France and Germany, he reveals.

A quick comparison: the Chancellor is making benefits claimants pay £11bn and banks £2bn towards the cost of recovering from the credit crunch.

1308 BST: Much tinkering with allowances to manufacturing and business. Entrepreneurs’ relief from Capital Gains Tax is to rise from £2m of gains to £5m of gains. The rate of corporation tax for small companies is to be reduced to 20 per cent. New businesses starting up outside London, the South East and the East, will be given a relief for up to £5,000 of National Insurance per new employee.

Overall, industry will pay less tax, says the Chancellor

1306 BST: Mr Osborne turns to measures to help business. His headline measure is four annual reductions of one per cent in the rate of corporation tax, starting next year when it will fall from 28 per cent to 27 per cent. By the end of the parliament corporation tax will be levied at 24 per cent, which Mr Osborne says is one of the lowest rates in the G20

1303 BST: Housing benefit is going to be capped, saving £1.8bn a year by the end of the parliament

1302 BST: A new medical assessment is going to be introduced for all new and existing claimants of disability living allowance from 2013.

1301 BST: Benefits are to be indexed from the Consumer Price Index instead of the Retail Price Index from April 2011, saving £6bn by the end of the Parliament

1259 BST: Child tax credits - payments will be reduced to those earning more than £40,000 from April 2011 - not as bad as the £35,000 cut-off that was being trailed before the Budget, and at least there is ten months’ grace before the cuts take effect.

There follows a lot of detail about how child tax credits are to be salami sliced: the baby element is to be removed for new children; the income disregard is to be reduced progressively from £25,000 to £10,000 and then £5,000; backdating to be reduced from three months to one month. It will take some time to untangle exactly how this will affect families.

1258 BST: Mr Osborne turns to cuts to the welfare budget, which is to produce £11bn of savings by 2014 - 15. First up - child benefit is to be frozen for 3 years.

1255 BST: Good news for Britain’s troops deployed to war zones. The operational allowance will be doubled to £4,800.

1254 BST: A two year pay freeze is going to be imposed on all public sector workers earning more than £21,000. As we already know, Lord Hutton, the former Labour Cabinet minister, will lead a review of public sector pensions. The Chancellor will move more swiftly to raising the retirement age to 66.

1253 BST: The student loans book is going to be sold off, as is NATS, and the future of the Tote is at long last going to be resolved, says Mr Osborne. Part privatisation of the Royal Mail will go ahead.

1252 BST: It’s true - the Civil List spending on the Royal Family is going to be frozen, although as it has been already been frozen at £7.9m for the last 20 years, this is less dramatic than at first appeared.

One notable change however is that the Queen has agreed that from 2012 Civil List spending will be audited by the National Audit Office and the Public Accounts Committee of the House of Commons. That should throw up some interesting details.

1251 BST: Public spending cuts of £30bn a year by 2014.

There will be no cuts in the overall level of capital spending - though which major capital projects get the cash is up for review before the Autumn spending round.

1247 BST: As Britain isn’t going to join the Euro, Mr Osborne says he has abolished the Treasury’s Euro preparations unit. Mocking cheers from the Tory benches.

1242 BST: The cuts are going to hit the economic recovery for the next two years. The revised forecasts from the Office for Budget Responsibility put growth marginally down to 1.2 per cent in 2010-11 and 2.3 per cent in 2011-12, from 1.3 per cent and 2.6 per cent.

But the budget pain will start to produce some gain towards the middle of the Parliament, according to the OBR. Growth will then bounce back to 2.8 per cent in 2012-13, 2.9 per cent in 2013-14 and 2.7 per cent in 2014 -15, Mr Osborne reveals, compared to the previous forecasts of 2.8 per cent, 2.8 per cent and 2.6 per cent respectively.

Inflation will hit 2.7 per cent by the end of this year, but will fall back to its target rate of 2 per cent in the medium term.

Unemployment will peak this year at 8.1 per cent, but fall back in successive years to 6.1 per cent at the end of the Parliament, Sir Alan Budd and the OBR say.

Cutting the deficit will be achieved 23 per cent through tax increases and 77 per cent by spending cuts, roughly in line with Mr Osborne’s preferred 20:80 ratio.

1238 BST: He mocks Gordon Brown’s golden rules, and says that the former PM missed his economic target by £485m. He promises a new fiscal mandate. He promises: “The structural current deficit should be in balance by the final year of the parliament 2015 - 16.”

Debt should be falling as a share of GDP by 2015 - 16, he says. He hopes to hit that target a year early, in 2014 - 15, so that debt is actually falling by the end of the Parliament.

1237 BST: He boasts that the measures that he has already taken has already cut interest rates on Government borrowing at a time when interest rates on other countries’ sovereign debt are rising.

1234 BST: “This is an emergency budget, so let me speak plainly about the emergency that we face,” says Mr Osborne.

“The coalition Government has inherited from its predecessor the largest budget deficit of any economy in Europe with the single exception of Ireland. One pound in every four we spend is being borrowed. What we have not inherited from our predecessor is a credible plan to reduce their record deficit.”

1233 BST: Sir Alan Haselhurst, the Deputy Speaker of the Commons, warns the MPs not to interrupt and gives the floor to Mr Osborne.

1224 BST: While we wait, here is some more Budget box bumph from Chris Moncrieff of the Press Association: “It may be Mr Osborne’s first Budget but it will mark the last appearance of the battered old Budget box which was made for Gladstone in 1860 and has served most Chancellors since. The authorities say it is too fragile to be used again.

“Gladstone, who served a record 12 years as Chancellor, was said to hug the box to his breast ‘with a kind of affectionate yearning suggesting the love of a mother for an infant’. But more likely it was to keep the Budget secrets from the prying eyes of Queen Victoria. (Eh? What was Queen Victoria going to do?)

“When Norman Lamont was Chancellor in the early 1990s, the box which was waved at photographers outside No 11 contained a bottle of whisky, while the speech itself was carried in a plastic bag by his then aide, William Hague. ‘It would have been a major disaster if the box had fallen open,’ Hague said later.”

1211 BST: Grainne Gilmore, the Times’s economics commentator, points out - for the benefit of those for whom words like “structural deficit” are hazy concepts - that when Mr Osborne says he wants to balance the books, what he means is that by the end of the Parliament Britain will no longer be spending more than it receives in taxes every year.

This year alone, for example, Britain is due to have to borrow £155 billion. But by the end of the parliament, its income and its outgoings should balance.

The gigantic mountain of debt that we have been racking up will still be there, however, and we will still be paying interest on it.

1204 BST: Labour is instantly on the attack. Leadership candidate Ed Miliband tells Sky that in Labour’s view the Government shouldn’t be making cuts this year as the recovery is too fragile.

1152 BST: Some instant analysis from Times political commentator Philip Webster:

Mr Osborne’s words suggest that the Budget may be even more brutal than expected. Labour had promised to halve the Budget deficit within four years. While the Conservatives have said they want to go further and faster, eliminating the deficit within five years implies a sustained onslaught on spending and little hope of reversing new tax rises before the end of the Parliament. It also implies considerable confidence in marked growth returning to the economy over the years ahead, consequently increasing tax receipts.

1151 BST: Mr Cameron’s official spokesman is describing the move as a “significant acceleration” in reining in Britain’s annual deficit.

1140 BST: Roland Watson, the Times’s political editor, has more on the news that Mr Osborne intends to balance Britain’s books by the end of the Parliament:

Mr Osborne took the Cabinet through the details of his first Budget this morning and made clear that the tough measures were the product of coalition collaboration.

He said that after weeks of build-up in which ministers have warned about the pain ahead, the Budget — to be unveiled at 12.30pm, would end the uncertainty for families and households.

Ahead of his announcement, Downing Street released comments from Mr Osborne in which he said: “My Budget is tough but it will be fair.

“This is an unavoidable Budget because of the mess we have to clear up. So the coalition government will take responsibility for balancing Britain’s books within five years.

“We are going to do it fairly, protecting children and pensioners and ensuring the richest contribute the most.”

Mr Osborne also pointed to a recovery led by growth, saying the private sector and not government would drive the recovery.

“And it means getting enterprise going because it’s business, not government, that will create the jobs of the future,” he said.

1135 BST: In an unexpected innovation, the Treasury Red Book — the Budget document — will be cut to about a third of its usual size.

The Prime Minister’s spokesman said it had been decided that previous Red Books were too heavy with detailed explanations of existing government policy. Today’s Red Book would be more focused on today’s announcements, he said.

All the figures, statistics and tables that were previously included would still be there, he said.

1130 BST: Some drama. Mr Osborne has told the Cabinet that he intends to try to balance the country’s books within five years. This is a lot more stringent than we had been led to expect. At the start of the election campaign Labour was talking about halving the deficit in a parliament, and Mr Osborne wanted to go further than that.

The Chancellor added that his Budget is “tough but fair”, and that it will protect children and pensioners, says No 10.

1120 BST: Lord Lawson, Lady Thatcher’s former Chancellor who knows a thing or two about presenting unpopular budgets, paints it black. “It is not easy, it’s going to make them very, very unpopular,” he predicts. “They are politicians, they like being popular, all politicians do, so they wouldn’t do it unless it was absolutely necessary.”

Oh dear. Lord Lawson had lunch with Mr Osborne last week. Maybe he knows something.

1100 BST: Mr Osborne is briefing his Cabinet colleagues about the contents of his Budget. At 11.30am he will step out of No 11 Downing Street for the traditional doorstep photos with Gladstone’s battered old red box, before heading to Parliament.

Wikipedia produces this gem: the practice of carrying Government business in a red box began in the late 16th century, when Queen Elizabeth I’s representative Francis Throckmorton presented the Spanish Ambassador, Bernardino de Mendoza, with a specially constructed red briefcase filled with black puddings, it reports. Can this be true?

1045 BST: The FTSE is having a muted morning as it waits for news. So far it is down 67.60 at 5231.51 since it opened at 8am.

1010 BST: The Tory election slogan was “We’re all in this together,” and Mr Osborne has been adamant in the run-up to the Budget that the rich are going to share the financial pain. The Treasury Red Book that will accompany today’s announcements will set out in more detail than ever before who will win and who will lose, Rachel Sylvester reveals in her opinion piece today. And it is bound to show that, pound for pound, the rich will lose more.

John Hills, Professor of Social Policy at the London School of Economics, points out however that this does not reflect the true impact on people’s lives. It is not how much you lose - it’s what proportion of your disposable income you lose. Prof Hills says that raising VAT to 20 per cent would hurt the poorest 10 per cent of the country seven times harder than the richest - removing 10 per cent of their income compared to 1.5 per cent. Ouch.

1000 BST: News emerges of a notable absence from the Commons chamber. When Mr Osborne gets up to speak at 12.30pm, Gordon Brown will be busy in his Fife constituency several hundred miles away, answering questions posed by pupils at St Andrew’s High School and presenting a Unicef award at a primary school in Kirkcaldy. “He’s basically focusing on his constituency over the next few months,” said his spokesman.

Perhaps after writing the last 13 Budgets (sorry, Alistair) Mr Brown would rather not have to watch someone else doing his old job.

0940 BST: What is at stake today? Peter Riddell, the Times’s political commentator, sounds a cautionary note. The drama and the build up surrounding the Budget are meant to persuade us that today Mr Osborne has a once-only chance to save Britain’s economy. That way voters are more likely to swallow the nasty economic medicine.

But in fact, says Peter, today is mainly about tax and revenue. The most important announcements - on cuts in public spending - won’t be made until the autumn. As Mr Osborne has repeatedly said, fixing the hole in Britain’s budget deficit will be 20 per cent tax increases and 80 per cent spending cuts.

Ian KIng, the Times’s deputy business editor, explains in this video the high political stakes.

0930 BST: And so to the most important moment in the short life of the coalition Government. It is Budget day, and the airwaves are alive with rumours about what George Osborne is going to announce.

According to one report, the Royal Family’s Civil List income is going to be frozen; other rumours concern taxes on air travel, and speculation that the much-anticipated increase in VAT to 20 per cent isn’t in fact going to happen at all.

Many of the rumours have the air of being well-founded, such as the supposed £1,000 increase in the personal allowance of income taxpayers from £6,475 to £7,475 - a figure that started circulating last night with apparently sound sources.

Once, the plethora of details might have given rise to the suspicion that the Chancellor and his team were selectively leaking bits of the budget to see how they went down with the pundits, with a view to changing them if they sank like a lead balloon. This time, however, the constraints of coalition government meant that the whole emergency budget package had to be signed off last Friday, at a meeting with David Cameron, Nick Clegg, Mr Osborne and his Lib Dem Chief Secretary to the Treasury, Danny Alexander. So there is no way that the Treasury could still be tinkering with the detail at 3am on Budget morning as has apparently been the case under previous chancellors. Mentioning no names.

Over the weekend the Office for Budget Responsibility has been revising its economic forecasts, including the all important predictions on growth, based on what Mr Osborne has decided. Last week the OBR slashed the official forecasts for economic growth over the next four years. It will be interesting to see how far the OBR thinks that Mr Osborne’s cuts and tax rises will damage even that modest recovery.