British chancellor George Osborne is to increase the personal income tax allowance to give 25 million people a cut of around £45 (€51) a year.
Mr Osborne has begun delivering his budget to the House of Commons.
He is expected to announce that the amount people can earn tax free will rise by £600 from April 2012, benefiting 25 million people and taking 250,000 out of income tax altogether.
His annual statement will also introduce help for first-time home buyers through a £250 million Treasury-backed scheme to offer equity loans worth 20 per cent of a property.
Available to households earning less than £60,000, they would be interest free for five years, with borrowers paying 1.75 per cent interest the year after and then 1 per cent above inflation.
The income tax threshold increase - part of a key policy secured by the Liberal Democrats as part of the coalition deal with the Tories - will take it to around £8,345 from April 2012.
Unlike a £1,000 rise announced in the last budget which comes into effect next month, it will benefit those paying higher rate 40 per cent tax as well as those on lower incomes.
More than 750,000 earners are expected to start paying higher rate tax from next month as a result of measures taken to offset the cost of the previous rise.
Mr Osborne was dealt a double whammy of economic bad news as he put the final touches to his second Budget since the Tory-Lib Dem coalition came to power in May.
He has cast it as the moment the government moves “from rescue to reform”, building on the deficit-reduction measures of 2010 with a business-friendly package to boost jobs and growth.
Official statistics however showed inflation rising to a two-year high of 4.4 per cent while borrowing spiked upwards to £11.8 billion in February, diminishing hopes of a significant undershoot on the government’s target of £148.5 billion for the financial year.
The combination of higher inflation and increased borrowing is likely to cast a pall over what Mr Osborne has sought to present as a “Budget for growth”.
The independent Office for Budget Responsibility is widely expected to downgrade its prediction of GDP growth in 2011 from 2.1 per cent to around 1.8 per cent today, as well as revising its borrowing forecasts upwards.
Mr Osborne has promised the public will not be asked to swallow any further tax hikes or spending cuts, insisting that last year’s £81 billion package is enough to wipe out Britain’s deficit by the end of the Parliament.
PA