Chancellor Alistair Darling cut his borrowing forecasts yesterday and announced a £2.5 billion package to promote growth in the last Budget before an election that is just weeks away.
Darling had repeatedly said there would be no big giveaways given the record budget deficit Britain faces, which has spooked financial markets. But with an election expected on May 6 that could throw his Labour government out of power after 13 years, some concessions were always likely.
He said he would scrap duty on house purchase on homes worth less than £250,000 for first-time buyers but pay for that with a one percentage point rise in duty to five per cent for houses worth more than £1 million.
"Those who have benefited the most from the strong growth in incomes in past years should now pay their fair share of tax," Mr Darling told parliament.
That prompted cheers from his centre-left Labour party colleagues and the move should play well with Labour's core vote coming on the heels of a new 50 per cent tax rate for high earners and a one-off tax on bankers' bonuses that Mr Darling said would raise £2 billion, nearly four times expectations.
He also froze inheritance tax thresholds for four years and promised to push the idea of a global levy on banks at international meetings in Washington next month. Partially state-owned RBS and Lloyds would provide £94 billion of new loans to businesses, he said.
Opposition Conservatives say they would introduce a unilateral tax on banks similar to that planned by US President Barack Obama if they win the election, likely to be held in early May, but will levy it at a lower level if they cannot do it as part of an international initiative.
The country's record budget deficit remains front and centre for investors after some ratings agencies have suggested the UK's top-notch credit rating could be under threat without a clear plan to cut debt.
Mr Darling said he was able to revise down his forecasts for the budget deficit in the current and next fiscal year but the recovery was still fragile and real fiscal tightening should only start next year.
Public sector net borrowing in 2009/10, Mr Darling said, would come in at £166.5 billion, or 11.8 per cent of GDP, compared with a December pre-budget report forecast of £177.6 Billion.
In 2010/11, borrowing is expected to come in at £163 billion versus £176 billion previously forecast. Future years have also been revised down.
Downward revisions had been widely expected by analysts. Not only has unemployment in Britain risen less steeply than expected, equity and oil prices have rebounded faster, meaning government spending has been slightly lower and revenues higher than previously feared.
"The next element of our fiscal plan is to control public spending. But to cut spending now, before the recovery is self-sustaining, would be short-sighted and counter-productive," Darling said.
The Conservatives say they would cut the deficit faster and start tightening this year though they still have to spell out how they would make this happen beyond saying they would hold a Budget within 50 days of being elected.
The Conservatives are ahead in opinion polls but their lead has shrunk markedly in recent weeks. Most polls are now pointing to a hung parliament where no party has a majority, a nightmare scenario for markets fearing it could leave a government without the clout to make unpopular spending cuts.
A Reuters poll on bond strategists predicted yesterday that yields on British government bonds will rise sharply this year but there is only a slight chance the country will lose its top credit rating.
Mr Darling stuck to his December forecasts of economic growth of one to 1.5 per cent for this year. In 2010, he predicted the economy to grow by a very robust 3.25 to 3.5 per cent - much more optimistic than most analysts.
Britain crept out of recession in the last quarter of 2009, later than most of its major trading partners.