The Budget checklist: what to expect

George Osborne will be unveiling his plans for the country's finances today. Ben Chu outlines some of the things you should look out for

Economic forecasts

The job of forecasting economic growth rates has been contracted out from the Treasury to the Office for Budget Responsibility (OBR), led by Robert Chote. The OBR has downgraded its growth forecast four times since George Osborne's emergency Budget in June 2010. Mr Chote unveiled a hefty series of downgrades at the Autumn Statement last November. Growth for 2012 was slashed from 2.5 per cent to just 0.7 per cent. But uncertainty abounds over what the OBR will say about the economic outlook this time around. Since last November the Office for National Statistics has estimated that the UK economy shrank by 0.2 per cent in the third quarter of 2011. But a host of businesses surveys since the turn of the year have pointed to an improvement in activity, bolstering confidence that Britain will avoid a double-dip recession. Most analysts do not expect the OBR to downgrade its growth forecast for 2012. It may even raise it slightly. But the OBR's longer-term outlook is still rosier than the City consensus and might be brought closer into line.

 

Public finances

The other job of the OBR is to say whether or not the Government is on course to meet its self-imposed "fiscal mandate" – namely, balancing the current expenditure Budget over a rolling, five-year horizon and ensuring that public debt as a share of GDP is falling by the end of the present Parliament. The chances of the Government hitting these targets hinges on the economic outlook. Weaker growth generally means weaker tax revenues and more borrowing. Yet despite the weakening of the economy over the past year, revenues have held up very well. Public borrowing for 2011-12 is on course to come in around £9bn less than the £127bn the OBR forecast in November. So there is also uncertainty about what the OBR will forecast for public borrowing this year. Some analysts are also predicting that the OBR will cut its borrowing forecasts for future years. But even if the OBR does deliver this good news, the Chancellor, who is under pressure from credit ratings agencies over the UK's AAA status, is highly unlikely to announce plans to spend the savings.

 

Income tax

Movement at the top and the bottom is in store. The Liberal Democrats have a longstanding objective of taking anyone who earns less than £10,000 out of income tax altogether. They have been making progress. The Chancellor raised the income tax threshold by £1,000 to £7,475 in the 2010 Budget. And it is set to rise to £8,105 next month. Further progress towards this goal is expected today, with the Chancellor set to announce that the allowance will rise to £9,000 in April 2013. Yet the Treasury has also been sending out strong signals that the 50p tax rate on incomes above £150,000 a year will be reduced to 45p in 2013 and 40p in 2014. Critics argue that the tax is more trouble than it's worth, since it discourages effort from high earners and simply results in people avoiding the tax. The Treasury originally said that the new tax would bring in around £2.7bn in 2011-12. A study, due to be published today, will show how much revenue it has actually produced, although some experts have argued that there is not yet enough data to reach a firm conclusion on the effectiveness of the tax. The Chancellor is also expected to announce a limit on the total amount of tax relief and allowances that wealthy individuals can claim on their income, which the Liberal Democrats have dubbed an effective "tycoon tax". There has also been speculation that the Chancellor will announce a further cut in the amount that wealthy individuals can pay into their pensions tax-free each year. In 2010 the Chancellor cut the allowance from £255,000 to £50,000.

 

Other taxes

Fuel tax is due to rise by 3p per litre in August, postponed from January. Pressure on the Chancellor from the motoring lobby to postpone again has been strong. But Mr Osborne's aides insisted last month that the Chancellor simply cannot afford to do so. The Liberal Democrats' proposals for a "mansion tax" on homes worth more than £2m have been rebuffed. But the Chancellor will also announce plans for a "General Anti-Abuse Rule", which will be designed to clamp down on legal, but highly aggressive, tax-avoidance schemes. A particular target is the practice of people transferring the ownership of their homes to offshore companies so they can avoid stamp duty. Corporation tax will fall to 25 per cent in 2012-13, and it is scheduled to fall to 23 per cent by the end of this Parliament. It is possible the Chancellor will announce another 1 per cent reduction, but this would be expensive, costing the Treasury around £800m.

 

Benefits

Child benefit is due to be withdrawn from families with a higher-rate taxpayer (those earning more than £43,000 per year) from January 2013, saving the Government £2.4bn a year. But critics have pointed out that a family with two adults earning just under £43,000 each (and a combined income of more than £80,000) would keep the benefit, whereas a family with a single earner with an income of slightly more than £43,000 would lose it. The Government has signalled that it accepts this is unfair. The Chancellor is expected to take action to mitigate the financial impact of the benefits removal on some families, possibly by tapering the withdrawal. There have also been suggestions that Mr Osborne might also announce a consultation on providing further help for parents in meeting the soaring costs of child care.

 

Employment

The Chancellor is expected to bring forward the scrapping of national pay rates for the public sector by one year to 2012-13, something he argues will stimulate growth in regions outside the South-east. There is also pressure for action on youth unemployment. More than one in five 16 to 24-year-olds – 1.042 million – are looking for work, and the Chancellor is under growing pressure to do something to help this group. In his last Budget, Mr Osborne announced 50,000 Government-sponsored apprenticeships. There have been calls recently for the Chancellor to reduce the national insurance contributions employers must make for people in this age group, to encourage hiring.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent