Chancellor to close tax loophole

A tax loophole which allows firms to dodge around £100 million a year in National Insurance will be closed in the Budget, it has been announced.

Chief Secretary to the Treasury Danny Alexander said it would target the use of offshore payroll services in tax havens such as Jersey and Guernsey. Around 100,000 employees - mostly teachers, nurses and oil and gas workers - are believed to be paid in that way and could be unknowingly ineligible for statutory sick pay.

Mr Alexander was alerted to the loophole by one such worker who approached him at Inverness Airport - though he insisted he found it was already under investigation by officials."It is not just about the tax we get in, it is also the case that many employees will not know they are paid in this way," he told BBC Radio 4's Today.

"If their employer is not paying Employers National Insurance, unbeknownst to them, they may not then be entitled to statutory maternity pay if they become pregnant, they may not be entitled to statutory sick pay if they fall ill.

"This is not just something which has direct consequences to the Exchequer, costing us all hundreds of millions of pounds, it is also something that has a direct consequence for the workers concerned and that why it is so important we are taking this action."

Mr Alexander will hail the move against "shadowy intermediaries" in his speech to the Scottish Liberal Democrat conference later. "British firms employing British workers must pay British taxes," he will say. "This is just one part of a bigger package that we will announce at the Budget next week."

It was also reported on Saturday that George Osborne's Budget on Wednesday would also contain details of a £1.5 billion childcare scheme to help with nursery fees. Families would get up to £2,000 in vouchers under the initiative, though it may not come into operation until 2015.

Earlier shadow chancellor Ed Balls has joined calls for emergency tax cuts in next week's Budget - saying Labour would applaud a cut in the basic rate of income tax to stimulate growth. Mr Osborne is under pressure from the Tory right to make bold tax moves on Wednesday to kick-start the UK's flagging economy.

The looming prospect of a triple-dip recession and the recent loss of the UK's once-cherished AAA credit rating have heightened demands for a change of course. But the Chancellor is expected to keep faith with his tough austerity programme, with Prime Minister David Cameron declaring the Budget would be about "sticking to the course".

In an interview with The Daily Telegraph Mr Balls said temporary borrowing to fund a cut in the basic rate of income tax would pay for itself. Labour has proposed a temporary VAT reduction as the best way to stimulate recovery but Mr Balls said he would "applaud" any any type of tax cut. "Something must be done now...you need some fiscal action," he said.