Philip Hammond braces Britain for tax hikes and spending cuts in his first Budget

Steven Swinford
Philip Hammond, the Chancellor - Rii Schroer

Philip Hammond will on Wednesday use his first Budget to raise taxes and lay the foundations for a "stronger and fairer" Britain outside the European Union.

The Chancellor will say that he will not "shirk" difficult decisions on taxes and public spending as he seeks to balance the books ahead of Brexit.

He will deliver an "upbeat" assessment of Britain's prospects as he announces that the economy has defied forecasts and grown at a significantly faster rate than expected.

However he will say that the strength of the economy is "built on resilience" as he rejects calls to use extra money from the upturn in economic growth to fund giveaways.

Significant spending in the Budget - expected to include a £1.3billion for social care and relief for those worse affected by rising business rates - will be funded by cuts and tax rises elsewhere.

There will also be measures to help those who are "still feeling the pinch" almost a decade on from the financial crash as he says that the Government "will do everything it can to help ordinary working families to get on".

The Government wants to tackle their concerns "head on", Mr Hammond will say as he outlines new plans to improve schools and training and equip young people for the "jobs of tomorrow".

It comes after the Institute for Fiscal Studies, the economic forecaster, warned earlier this month that the amount of tax paid in the UK is poised to reach the highest level in 30 years.

The Chancellor is expected to announce a rise in National Insurance rates for the self-employed, which could be worth as much as £1billion,  to bring them closer to the level paid by those in salaried jobs.

Profile | Philip Hammond

The move could see the rate rise from 9 per cent to 12 per cent. The Resolution Foundation, a think-tank, said that higher earners are likely to be the "biggest losers" and face paying £1,000 more in tax.

The Chancellor is also expected to increase alcohol duty but has ruled out further action against diesel drivers despite concerns about increases in the levels of dangerous pollutants. Government departments have already been ordered to find savings of up to 6 per cent ahead of Brexit.

It came as the OECD, the economic think tank, yesterday forecast the Britain's economy will grow by 1.6 per cent this year, up from the 1.2 per cent it was predicting in November.

The Office for Budget Responsibility, the official fiscal watchdog, is today expected to say that borrowing figures will return to pre-referendum levels, raising its forecast from 1.4 per cent to 2 per cent.

Business rates UK map

Mr Hammond is expected to use the proceeds of the economy's stronger growth and lower borrowing to build a Brexit war chest worth up to £60billion to help Britain cope with economic turbulence as it leaves the EU.

Allies of Mr Hammond said that he will be upfront about the scale of tax rises and spending cuts.

"He doesn't want to be accused of stealth tax rises or hidden spending cuts like George Osborne," an ally of the Chancellor said. "He will be upfront and transparent."

In one of the few giveaways Mr Hammond will use his Budget to offer hundreds of millions of pounds in relief to high street traders facing huge hikes in business rates.

In the run-up to the Budget the Government prompted a furious backlash from Conservative MPs and small businesses with the first change in business rates in a decade.

The new rates, which take effect in April, will see companies paying rates which have been calculated to take into account the rise in property prices since 2008.

Theresa May, the Prime Minister

It means many businesses in the South East will face soaring rates while others in areas where High Street rental prices have fallen will benefit. Mr Hammond will give pubs, some of which are facing 50 per cent hikes, discounts on their business rates worth a total £25million.

Nine in 10 pubs - equivalent to 36,000 - will enjoy a £1,000 reduction in their bills to help limit the impact of the rises in rates.

The Chancellor's room for giveaways is limited because he is already committed to a series of significant tax and spending commitments made by his predecessor George Osborne.

Next month the personal allowance, the amount people have to earn before paying tax, will rise by £500 to £11,500 for the 2017-18 tax year.

The threshold at which people begin to pay the higher rate of income tax will rise from £43,000 to £45,000. The state pension will rise under the Government's "triple lock" from £155.65 a week to £159.55, while child benefit and benefit payments remain frozen meaning they will effectively be cut in real terms.

One of the biggest revenue raisers Mr Hammond has inherited comes from a crackdown on buy-to-let landlords.

From April investors will no longer be able to claim higher rate tax relief on mortgage interest, a move which could cost landlords thousands of pounds.

Mr Hammond will also mark the centenary of ground-breaking legislation which gave women the right to vote with a new £5million fund to educate young people about the significance of universal suffrage.

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