George Osborne has insisted that there will be “no giveaways, no gimmicks” in Wednesday’s budget.
However, tax receipts have improved markedly since he delivered the autumn statement in December, with better economic growth boosting tax receipts, while record low inflation has reduced government borrowing costs. This has swelled Treasury coffers and given the chancellor more room to manoeuvre.
With only 50 days to go until the 7 May election, we can expect a number of modest pre-election sweeteners.
Growth and borrowing projections
The Office for Budget Responsibility is likely to upgrade its projections for economic growth while the budget deficit forecasts will be lower (they will feature prominently in Osborne’s budget speech).
The OBR previously predicted GDP growth of 2.4% this year and 2.2% next. The chancellor will be able to trumpet that the OBR’s forecast of a £6bn fall in the 2014-15 deficit relative to 2013-14 has been achieved two months early, noted Deutsche Bank economist George Buckley.
Osborne is expected to raise the tax-free personal allowance further. It is already due to increase from £10,000 to £10,600 in April and he could take the income tax threshold up to £11,000 or even £11,500. At a cost of £2.5bn for every £500 increase, this would not come cheap.
He could also raise the 40% tax threshold from £41,865 to £50,000 to please the middle earners who have been dragged into the higher rate band in recent years.
Increasing the level at which national insurance is paid is another option. Sian Steele, tax partner at PricewaterhouseCoopers, explained: “National insurance is a far greater burden on low earners now than income tax.” Raising the threshold by £1,000 for both employees and employers would cost up to £6bn. One way of recouping these costs would be to raise the upper limit of national insurance at the same time as raising the lower limit, said Andrew Sentance, senior economic adviser at PwC.
With his eye on the grey vote, the chancellor will further relax pension rules by allowing 5 million existing pensioners to cash in their annuities from April next year.
This will give them the same rights as working people who have not yet taken their pensions. Under last year’s pension shake-up – the 2014 budget “rabbit” – they will be able to cash in their pensions when they retire, rather than being forced to buy an annuity that guarantees an income for life. Those rules come into effect in April. Annuities have had a bad press amid plunging rates.
The chancellor has drawn up plans that would allow parents to pass a main property worth up to £1m to their children without paying any inheritance tax, according to Treasury papers seen by the Guardian.
The proposed measure is unlikely to be in the budget, but the chancellor may refer to it. He also has a plan to reduce the inheritance tax bill on properties worth up to £2m by £140,000. The Treasury analysis concludes that the £1bn scheme would “most likely benefit high income and wealthier households”.
There could be more on the rules letting spouses inherit ISA pots tax free, which have been under consultation. Until now, the ISA wrapper and its tax benefits were lost on death.
Beer duty cut
An easy pre-election crowd pleaser, a further cut to beer duty seems likely for the third year running – another penny (or two) off the price of a pint. Whisky and cider could also see tax cuts, after last year’s duty freezes.
The chancellor is likely to unveil new measures aimed at increasing housebuilding, with the housing shortage, especially in London and the south east, showing no signs of easing. There could be incentives for local authorities to release more land or brownfield sites and planning permission relaxation for housebuilders, as well as more help with deposits and mortgage availability for first-time buyers.
North Sea oil and gas industry
Britain’s oil and gas companies have been hit hard by the recent slide in oil prices and are more highly taxed than other industries, with a rate of 60% to 80%. Tax on the industry was raised in 2011 when the oil price averaged more than $111 a barrel, compared with $53 now. The chancellor is likely to announce a tax cut along with other measures. An “investment allowance” has already been announced. It will let oil companies invest at reduced rates and replace the current numerous complex allowances. Danny Alexander, chief secretary to the Treasury, told the BBC recently: “We’ve been very clear that the direction of travel for tax in the North Sea needs to be downwards.”
Swansea tidal lagoon
Osborne is to unveil an ambitious (and costly) plan to build the world’s first tidal lagoon to generate energy in Swansea in south Wales.
The chancellor is bound to chatter on about the bank levy, which was first announced in the June 2010 emergency budget after the coalition government came to power. The fines imposed on the banks for rigging key interest rates known as Libor are also likely to get a mention. The £450m Libor fines have been given to military-related charities.
Osborne told the BBC that the budget would be about delivering a “truly national recovery from building a Northern powerhouse, connecting other regions of our country, committing to long-term plans that support science and high-speed transport”. He is to announce investment in the north’s chemical industries and health projects. A high-speed rail link between Manchester and Leeds (HS3), proposed by the chancellor last year, will also get the green light.
In the autumn statement, Osborne launched a crackdown on tax avoidance by multinational technology firms such as Google and Amazon by imposing a 25% tax on profits that are generated in Britain but shifted abroad. The diverted profits tax, dubbed the “Google tax,” is set to raise more than £1bn over the next five years and takes effect on 1 April. By making it 5% higher than the UK’s corporation tax rate of 20%, the Treasury hopes to encourage companies to dismantle tax avoidance structures. Early drafts of the legislation indicated that it may apply more broadly than expected, PwC said.
Vince Cable, the business secretary, said a few days ago he would like to see the coalition act on non-domiciled tax status. He said: “The whole non-dom thing is a nonsense and it should have gone years ago.” Non-doms – wealthy individuals who live in the UK but pay less or no tax because they are not legally domiciled here – were hit with new charges in the autumn statement.
About 1.5m homes in remote areas will no longer miss out on a government pledge to give 95% of the population access to “superfast” internet by 2017. According to reports, the chancellor is expected to speed up a programme to connect remote homes via satellite and other technologies.
National Minimum Wage
The government confirmed the Low Pay Commission’s recommended increase to the National Minimum Wage to £6.70 an hour the day before the budget.
This article was written by Julia Kollewe, for theguardian.com on Wednesday 18th March 2015 06.30 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010