George Osborne gambles on a move 'from rescue to recovery and reform'

CHANCELLOR George Osborne is set to set to take a gamble on merging National Insurance with income tax in a bid to simplify the tax regime.The move is expected to be announced in the Budget on Wednesday, although it is likely to take several years to implement.

It comes as Mr Osborne also confirmed that he will not be announcing any new major cuts or tax rises in the Budget, while there is likely to be a freeze on fuel duty.

The Chancellor also said in a broadcast interview that he intended to push up the threshold from which tax is paid towards the coalition's target of 10,000.

There is also likely to be help for 50,000 new apprenticeships as the government attempts to deflect criticism for cancelling job creation schemes for young people such as the Future Jobs Fund.

Speaking yesterday, Mr Osborne said: "We have taken Britain out of the fiscal danger zone. Now we have to move from rescue to recovery and reform."

This was seen as a strong indication that he intends to scrap personal contributions for National Insurance, a duty which during the election he lambasted as a tax on jobs.

But with the rate set to rise to 12p in this budget, it would mean adjusting the basic income tax rate to 32p, the higher rate to 52p and the top rate for those earning more than 150,000 of 62p.

And while the move could be unpopular because of the proportion of income being removed, it is understood that Mr Osborne believes it will iron out anomalies in the system and ease the bureaucratic burden on employers. Because of the way the system is set up at the moment, those who earn between 100,000 and 112,950 get hit by a marginal rate of 60 per cent, while this then drops back down to 40 per cent above that band until individuals earn 150,000 or more and pay 50 per cent.

But Mr Osborne rejected calls by Labour for a U-turn on VAT and some of the cuts he has imposed on the public sector.

He said: "That would be a huge mistake. We would lose economic stability. We would be back in the mess of wondering what is going to happen to the UK's credit rating. That is not going to happen."

The Chancellor also called on Labour to "show humility" for getting the economy into a mess.

But shadow chancellor Ed Balls said that Mr Osborne's determination to eliminate the deficit within four years - rather than halve it, as Labour advocates - was to blame for rising unemployment and slowing growth.

Mr Balls said: "George Osborne's plan is not working, we are not getting the jobs and growth we need to get the deficit down and deal with the competitive challenges.

"The question for the Budget, for George Osborne, is what will he actually do to get jobs and growth into our economy? So far, we have seen precious little."

He added: "What's happening in our economy now is because of his decisions to go too deep, too fast."

Meanwhile, Labour's Liam Byrne, shadow work and pensions minister, urged Mr Osborne to reverse the "counter-productive" decision to cancel the Future Jobs Fund and education maintenance allowance.

Mr Byrne said: "The Conservative-led government also needs to address the fundamental cause of rising unemployment and our faltering recovery, with its reckless policy to cut too deep and too fast. They need to get a Plan B that puts jobs and growth first, before it's too late."

Shadow chief secretary to the Treasury Angela Eagle said: "George Osborne's claim to have mounted a ‘rescue mission' of the British economy shows just how out of touch he is with what's happening in the real world.

"His reckless plan to cut too deep and too fast has taken a growing economy with falling unemployment and delivered an economy which shrank at the end of last year, a 17-year high in unemployment and rising inflation.

"George Osborne needs to rethink the speed and scale of cuts and tax rises, which are hitting families hard in the pocket and derailing our economic recovery.

"There need to be tough decisions, but you can't get deficit down if the economy doesn't grow strongly this year and there are fewer people in work making a contribution."

l Economic recovery in the UK must involve allowing interest rates to rise, free market think-tank Reform said today.

In a report ahead of the Budget, it said the root cause of imbalances in the economy, including the financial bubble, was "excessively loose" monetary policy over the past decade, which allowed consumers and businesses to borrow on the cheap.

The report's authors, including former Downing Street adviser Derek Scott, said the Budget should introduce market-friendly policies to help increase the rate of return on investment.