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Brown promises cuts in income and corporation tax rates

Posted 21 March 2007 at 1:24PM by Simon Dickson in Investment and finance

This was the most eagerly anticipated Budget speech in several years, and Gordon Brown didn't let us down. A budget he described as 'broadly neutral for the public finances and overall' promised a cut in corporation tax to 28p from April 2008, and a new £43,000 threshold for the top rate of income tax from 2009. Then, as he seemed to be building to a conclusion, one final flourish - a cut in the basic rate of income tax too, from 22p to 20p from April 2008.

Mr Brown had clearly dressed for the occasion, surely one of the most important of his career. His dapper blue suit, with a bold fuchsia tie, contrasting markedly with the grey behind him. Behind and to the left, the (current) Prime Minister looked on in admiration. On the other side, John Prescott looked even more sullen than usual.

A couple of quick jokes to warm up the audience - including a cheeky reference to the less than complimentary remarks of his former chief civil servant, Lord Turnbull - and away we go. The changes, Mr Brown said, would 'prepare and equip Britain for all the long term challenges we face' - with a focus on long-term investment and environmentally sustainable growth; encouraging and rewarding work and savings; and supporting and strengthening families.

But it's undoubtedly the tax rate changes which will attract most attention. The reduction of mainstream corporation tax to 28% would give Britain the lowest rate of all the major economies; but, he warned, the small companies rate would increase to 22%. 'I need to act to deal with individuals artificially incorporating as small companies to avoid paying their due share of tax,' he said - but the revenues from this rate rise would be 'recycled to legitimate small businesses investing for the future.'

Small firms can also look for new 100 per cent relief for new capital investment up to £50,000, a 175 per cent tax credit for R&D, and a new tax credit for environmental investment. For small businesses employing people in need of basic skills training, there will be 'help' of up to £3,000 per employee from now until 2011. There will also be a 70% increase in the funds made available to Business Link and the Regional Development Agencies to advise on environmental improvement and energy audits.

As for the old favourites? Fuel duty will rise by 2p per litre, in line with inflation, but this will again be deferred until October. There will be the normal indexation rises for alcohol, but duty on spirits will again be frozen. Duty on cigarettes will rise by 11p per pack of 20 from 6pm tonight.

And then, just as we expected him to commend this budget to the House - he paused. 'I have one further announcement. With the other decisions I have made today we are able to hold to our pledge made at the election not to raise the basic rate of income tax.' Right... now, where's he going with this?

'Indeed to reward work, to ensure working families are better off, and to make the tax system fairer, I will from next April cut the basic rate of income tax from 22p down to 20p. The lowest basic rate for 75 years. And I commend this Budget to the House.' To loud cheers, he finally sat down, his eleventh - and in all likelihood, his final - speech completed... and the analysis begins.

I'll be keeping an eye on the coverage around the web this afternoon, and reporting back before the end of the day. Stay tuned...

Tags: budget, corporation tax, gordon brown, grants, income tax

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