Emergency Budget: VAT up, income tax threshold up for lower earners

Chancellor George Osborne outlined heavy spending cuts in this afternoon's emergency Budget.

Low-income earners were given a boost as the tax-free personal allowance was lifted by £1,000 from the threshold of £6,475 to a new level of £7,475. This takes 880,000 out of the tax system altogether.

But the higher rate income tax threshold will remain frozen to 2013/14. The Chancellor said there was a long-term objective to increase the personal allowance to £10,000.

For entrepreneurs there are a number of incentives including a £5,000 National Insurance contribution exemption for any businesses set up outside of London, the south-east and east of England for the first ten employees hired.

VAT has been increased from 17.50% to 20% on Jan 4th 2011 in a Budget in which cuts were described as 'unavoidable'.  Child benefit has also been frozen for the next three years.

Public sector workers face a pay freeze of two years, but those workers getting less than £21,000 per year (28% of the public sector) will be given a flat rate pay rise of £250 for the next two years.

The Chancellor said his Budget ''supports a strong enterprise-led recovery."  ''It is tough but it is also fair,'' he told the House of Commons, and ''early determined action'' was needed to ensure ''credibility in the international markets."

The health in pregnancy grant is to be abolished in April 2011 and the Sure Start maternity grant will now be restricted to the first child.  Single parents will be expected to look for work when their youngest child starts school.

There will be no hike in duty on alcohol, taxes and fuel, but there will be a review into the issue of aviation tax later in the year.

Tax credits for families earning about £40,000 will be reduced.
The economy is forecast to rise by 1.2% this year.