It’s George Osborne’s fifth Budget today and rather than tweeting a picture of himself devouring a Byron burger, the new slimline Chancellor has marked the occasion by posting an image of the new £1 coin (designed to reduce fraud).
Today I will deliver a Budget for a resilient economy – starting with a resilient pound coin pic.twitter.com/Ev2IuNpXg4
— George Osborne (@George_Osborne) March 19, 2014
“After 30 years loyal service, the time is right to retire the current £1 coin, and replace it with the most secure coin in the world,” he will tell MPs.
Here are 10 other things to look out for in the Budget.
1. Another hike in the personal tax allowance
Having achieved the original coalition target of a £10,000 income tax threshold (despite David Cameron claiming in the first 2010 leaders’ debate that it was unaffordable) , Osborne is certain to go further today and try and claim ownership of this Lib Dem policy for the Tories. Expect him to announce that the personal allowance will rise to at least £10,500 from next year and possibly to £10,750. Labour, meanwhile, will remind voters of the 24 tax increases Osborne has introduced since 2010.
2. The level of the new welfare cap
As ever, Osborne will use his statement to carve out dividing lines with Labour on welfare. For the first time, he will announce the level at which the new cap on total welfare spending (excluding the state pension and Jobseeker’s Allowance), will be set at and then challenge the opposition to match it.
3. When will wages outstrip prices? And by how much?
As Labour never forgets to remind us, while GDP is rising again, real wages are still falling. For this reason, perhaps the most significant numbers in the Budget will be on the expected relationship between wages and prices this year and next. Expect Osborne to claim any sign of significant growth in incomes as evidence that the “cost-of-living-crisis” is finally coming to an end. But if wages are merely forecast to creep above inflation, Labour will be able to warn that relief is far away.
4. A cut in bingo duty for “the workers”
In an attempt to frame this as a “blue collar” Budget, Osborne will announce a reduction in bingo duty from 20 per cent to 15 per cent. A measure first demanded by Robert Harlow (dubbed “the most expensive MP” by David Cameron due to his long-running campaign on fuel duty), it is designed to send out the signal the Chancellor is in touch with those famed “hardworking families”.
5. New growth forecasts: is the recovery sustainable?
Alongside Osborne’s tax changes, the OBR will publish its new forecasts for growth. While these are likely to flatter the Chancellor in the short-term (as anaemic forecasts are revised up), it’s worth watching to see how the economy is expected to perform in the years after 2015. If the OBR revises its forecasts down, Labour and economists will warn that the recovery is not a sustainable one.
6. What happens to the 40p tax threshold
No issue has provoked more pre-Budget ire from Tory MPs than the increasing number of taxpayers snared by the 40p rate. Owing to successive reductions in the starting threshold (which currently stands at £41,451, down from £43,875 in 2010), the number of people paying the higher rate has risen to a record high of 4.4m, up from 3m before the election.
Former chancellors Norman Lamont and Nigel Lawson have both weighed in and urged Osborne to act to relieve the squeeze on the “middle”. But since those paying the 40p rate actually represent the top 15 per cent of taxpayers, the Chancellor is likely to target his limited resources (the deficit is forecast to be £111bn this year) elsewhere. Barring a surprise U-turn (not unheard of in Budgets), the threshold will rise by no more than 1 per cent, below the rate of inflation, ensuring that Tory backbenchers will have something to grumble about tomorrow.
7. The output gap (or how much more austerity is needed)
One of the most important numbers in the Budget is the output gap, or the difference between actual and potential growth. This figure determines how much more austerity is needed to eliminate the structural deficit (the part of the deficit that exists regardless of the level of output). Osborne originally pledged to plug the gap by 2014-15 (this year, in other words) but has been forced to extend that promise until 2017-18 as his spending cuts have reduced the economy’s growth capacity. Don’t expect matters to improve much today – the FT has calculated that the structural deficit may be £20bn bigger than thought.
8. A deficit trap for Labour
Despite his failure to meet his deficit targets, Osborne will again seek to present himself as a fiscal conservative in contrast to a spendthrift opposition. Expect him to reaffirm his commitment to achieve an overall budget surplus by 2018-19 (or even earlier if growth allows) and to bring forward a new Charter for Budget Responsibility to enshrine this pledge in law. Labour will reply that it won’t take any lectures from the man who vowed to balance the books by 2015, but the challenge for Ed Miliband (who will reply to Osborne in the House) and Ed Balls will be attacking the Chancellor’s “bad borrowing” while simultaneously making the case for the “good borrowing” needed to support investment in housing and other projects.
9. Married couple’s tax allowance: a beginning or an end?
Through gritted teeth, the socially liberal Osborne will confirm details of the new marriage tax allowance, which will be introduced next year. Despite the broad promise to “recognise marriage” in the tax system, just a third of couples will benefit from the move. The policy will only apply to basic rate taxpayers not using all of their personal allowance (which currently stands at £10,000), allowing them to transfer up to £1,000 to their spouse or civil partner, reducing the latter’s tax bill by around £200.
As a result, just four million out of the 12.3 million married couples will benefit (at a cost of £600m), including only 2.5 million of the 8.7 million married couples with someone in work. The remaining 1.5 million gainers are mostly married pensioners. As the IFS has noted, “The policy is not, therefore, a general recognition of marriage in the tax system, as it affects only 32% of married couples and 29% of non-pensioner married couples.”
For this reason, many Tory MPs would like the government to promise to go further in the future. David Cameron recently raised their hopes when he described the new allowance as the “start of something I would like to extend further.” But will Osborne, who loathes the policy for political and economic reasons, offer similar encouragement? It’s worth watching to see.
10. Some surprises
No. 10 is briefing that “There are significant things in the budget which have not been revealed”. Could a cut in the basic rate, or something similar be on the cards?