U.K. Treasury to Raise Income Tax, Cut VAT

By Emily Flynn Vencat

LONDON -- Britain's Treasury head Alistair Darling will announce plans Monday to raise the top rate of income tax and cut the basic sales tax to help Britain weather the economic downturn, according to media reports.

In his pre-budget report, Darling will announce plans to increase the top income tax to 45% from 40% for people who make over 150,000 pounds ($223,000) a year, effective in 2011, according to British media reports including those from the BBC and the Financial Times.

That scheduled date falls after the next national election, which must be held by May 2010.

The reports also say Darling will temporarily reduce Britain's standard sales tax -- called VAT - to 15% from 17.5% to encourage Britons to spend and stimulate the economy.

The Treasury refused to confirm the reports.

"We need to tell Parliament before we tell the press" what the budget will be, said a Treasury spokeswoman, who declined to be named in line with British government policy. Darling is scheduled to speak to Parliament on Monday afternoon.

However, details of the pre-budget report were leaked to the British press over the weekend.

The leaked information emphasizes two policies that are likely to be popular with the majority of the British public: lower sales tax and a higher income tax rate for the rich, who some feel are partly to blame for the current economic downturn.

However, the details also suggest that government borrowing will reach record levels of well more than 100 billion pounds ($149 billion) next year -- far above analyst expectations.