Budget 2016: What to expect from George OsborneComments Off on Budget 2016: What to expect from George Osborne
The Chancellor hailed the UK as the “comeback country” as he bowled into a general election campaign 12 months ago, promising a move from “austerity to prosperity” as the nation prepared to head to the polls.
A year later, as George Osborne presents his eighth Budget, that comeback looks more reminiscent of golf legend Tiger Woods’ faltering efforts to get back into the swing.
Growth is harder to find, the spending knives are out, yet Osborne said he’d shell out more on infrastructure projects like HS3 and Crossrail 2. So who will Osborne pick on tomorrow?
As recently as November, the Office for Budget Responsibility was predicting 2.4% growth for 2015 and 2016, and 2.5% next year. That’s been torpedoed by official revisions as well as the “dangerous cocktail” of global weakness the Chancellor talked up in January.
The OBR is likely to lop around 0.2 percentage points off the forecast; embarrassing for Osborne and damaging to the Treasury’s coffers to boot. Inflation this year will be slashed from 1% closer to zero.
Debt and the deficit
Low inflation has hit tax revenues and the OBR’s £73.5 billion borrowing target for 2015/16 looks vulnerable — with just £7 billion of breathing space and two months of the financial year still to go.
If he wriggles his way out of this one, it will be a major surprise — even if deeper cuts ease the borrowing damage later in the Parliament. Osborne’s target to put debt as a share of GDP on a downward course also looks shaky.
Insurance premium tax
General insurers such as RSA, Aviva and Legal & General will be keeping an eye on what happens to the insurance premium tax — a sales tax levied on insurance premiums sold to customers.
The levy, introduced in 1993, has provided funding for the cash-strapped Chancellor. He hiked it to 9.5% from 6% last summer to give the Treasury an extra £8 billion over five years, making it the biggest revenue raiser in the last Budget.
A further increase to 12.5% is widely anticipated tomorrow. Trade body, the Association of British Insurers said a further hike will increase insurance bills for a family by about £100.
Multinational tax avoidance
The Chancellor is also likely to crack down on tax avoidance by multinationals in the wake of the Google Tax row.
Plans to cut tax relief for debt interest payments are likely to form one pillar of a so-called business tax roadmap, which will clamp down on profit shifting by multinationals.
This could involve restricting interest costs on earnings, which companies use to work out their tax bill.
More measures on tax evasion are also expected as further details emerge on plans to digitise HMRC to make it easier for individuals to keep up with their taxes.
The Chancellor had promised to unveil reforms on business rates last year, so the delayed announcement is almost certain to take place tomorrow.
Businesses — retailers in particular — have for years been banging the drum for change. However, government sources are telling the industry not to get overexcited.
Reforms are likely to include devolving more powers to local authorities — but with a budget black hole, any hopes of actual cuts to rates bills are unlikely.
The Government could give some help to businesses by putting the measure for increasing rates bills in line with the Consumer Price Index instead of Retail Price Index.
Fuel duty is expected to rise for the first time since 2011, as the Chancellor takes advantage of low fuel prices, with a litre below £1 in many areas.
The last time fuel duty was on the table, petrol prices were already sky high, leading to widespread anger. This time, with barrels of oil remaining low, the fury will be harder to justify — although motoring groups have already criticised any potential move.
A rise of 1p a litre — in line with inflation — would net the Chancellor an extra £2 billion.
Britain’s banks are hoping they will be left alone. Last year, the Chancellor announced the switch from the bank levy charged on global assets to a straight 8% surcharge on top of corporation tax for all banks making annual profits of at least £25 million.
Challenger banks have complained that this hit them harder than the established banks, but they expect no immediate let-off.
The British Bankers’ Association says banks will end up paying twice what the Chancellor originally claimed at some £12 billion over the next five years.
Bradford & Bingley
An accelerated sale of £17 billion of former Bradford & Bingley mortgages held by UK Asset Resolution could be one of the big headlines in the Budget.
A similar disposal of Northern Rock mortgages last year raised £13 billion.
Speeding up the sale of the B&B portfolio would hasten the eventual closure of UKAR and increase the likelihood of the taxpayer emerging from forced nationalisation of the two former building societies at a profit.
Further sales of Lloyds and Royal and Bank of Scotland shares could be left until later this year.
Brewers and publicans are hoping for the fourth 1p cut in beer duty in a run from George Osborne who recently invited his own local, Tatton Brewery, to the House of Commons.
But sin taxes always rise and most drink duties are expected to rise in line with inflation again.
Smokers may be hit harder than usual, with an above-inflation duty rise looking likely. There is talk of a minimum cigarette pack price although that would hit the poorest hardest.