Chancellor George Osborne is set to raise the personal income tax allowance by £1,000 to £6,475 in the Budget today, removing more than 850,000 people from paying income tax.
In a Budget set to hit the rich, Osborne will also announce a £200 tax cut for 20 million basic rate taxpayers.
Those earning more than £40,000 will not benefit because they will are likely to face a rise in National Insurance contributions. Osborne is likely to announce changes to NI, which means employers will no longer have to make contributions for around 650,000 employees.
The Chancellor is expected to say the "tough but fair" Budget is unavoidable if the £155bn deficit is to be brought under control.
To pay for the income tax break for low earners, the Treasury is expected to raise VAT. Shadow chancellor Alistair Darling expects VAT to climb from 17.5% to 20%. A bank levy is set to get the green light also, which could raise up to £3bn.
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