UK raises VAT rate, slaps bank levy and cuts spending to end deficit

UK finance minister George Osborne today announced a budget squeeze on the economy, raising tax rates and announcing a fresh levy on banks, even as he slashed government spending.

Announcing the first budget by the new Conservative government, Osborne, chancellor of the exchequer, said he aimed to bring the UK government's record budget deficit to almost nil in five years.

Osborne announced a flat 2 billion pound levy on banks effective next year, which analysts said, would cost industry up to 5 billion pounds.

He also hiked the value added tax (VAT) rate to 20 per cent beginning next year from the current 17.5 per cent.

Items such as food, children's clothes and books will, however, remain zero-rated for VAT purposes.

He, however, cut the effective corporate tax rate by one percentage point to 27 per cent. He also raised the income base for personal income tax by £1,000 from next year.