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Top Story  Wednesday March 21 , 2012 06:59 GMT

Osborne may announce a tax cut on top-income earnings and issuance of long-lasting gilts in his annual budget  

Today comes the main focus of the week which is U.K.'s budget presented to Parliament as Chancellor of the Exchequer George Osborne announces his annual budget at 12:30 p.m. in London.

Expectations are referring to seeing a reduction in top income tax rate on earners over £150,000 from 50p to 40p as it doest not bring billion pounds as predicted previously by the Exchequer and amid pressure from business leaders that the levy discourage money-makers from being based in Britain.

Osborne revealed on Tuesday that families with middle and low incomes are "totally out of touch."

If he cut tax on top income earnings, however, he has to raise as much as 2.5 billion pounds a year, probably making an income of 1,000 pounds the start for paying an income tax.   

Nevertheless, he said in an interview to CNN “we are going to stick with the deficit reduction plan that I set out almost two years ago.”

There are some risks to cut taxes amid times the government is focusing on austerity measures to cut Brittan's huge debt.

Fitch Rating said last week Osborne's budget “is expected to reaffirm the government’s commitment to deficit reduction.”

Fitch changed U.K.'s outlook to "negative" from "stable," stating that there is a one to two chance Britain would lose its top AAA rating within two years on the threats posed from anemic economic recovery, high sovereign debt, and risks from the European debt crisis.

Also, it said its decision “reflects the very limited fiscal space to absorb further economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery.”

On the other hand, a Treasury source said last week Osborne will unveil 100-year gilts to borrow cheap money with low interest rate for taxpayers, retrieving this long-lasting bond for the first time since World War I in 1918. 

Osborne aims to cut U.K.'s third-biggest deficit in the Group of Seven to 9% of GDP by the year 2017, yet this may cost shaving up to 700,000 public-sector jobs, noting that unemployment is currently at the highest level in 16 years at 8.4%.   

The British government is trying to find a complete method to reduce budget deficit while bolstering growth, where policy makers are now relying on the decline in prices to enhance household spending to build growth.

In March, BoE opted to keep both interest rate and APF unchanged at 0.50% and 325 billion pounds. Minutes of the meeting will be due today with expectations to show a unanimous vote for both interest rate and APF.

Minutes for February meeting showed that MPC members voted unanimously to leave rates steady at 0.5%; however, policy makers split on the asset purchases program as Adam Posen and David Miles called for an increase in the quantity of the stimulus by 75 billion pound, while the other seven members including the governor Mervyn King voted to increase the program by 50 billion.

BoE's policy makers said this month there are still no guidelines whether the bank will add more stimuli or not due to the heightened risks posed from the euro area debt crisis and squeeze in bank lending.



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