City A.M.'s bumper Budget preview
17 March 2014 2:58pm
As chancellor George Osborne gets ready to unveil the penultimate budget before the general election, we've pulled together all the expected announcements, and what others are hoping for.
Due to the scale of the budget deficit Ernst & Young believe the chancellor has little room for manoeuvre in terms of giveaways.
While the Office for Budget Responsibility (OBR) may raise its growth forecasts, fiscal projections will be little changed.
The 2013/14 deficit is expected to be in the region of £95bn, rather than the OBR December 2013 forecast of £99bn.
Bob Wood, chief UK economist at Berenberg bank, says:
The underlying fiscal position, which is what really matters, is not improving faster than expected.
The Institute of Economic Affairs (IEA) believes the UK is unlikely to experience catch up growth in the medium term and has called for a significant reduction in government expenditure. In the short term this would include abolition of free bus travel, free TV licences and the winter fuel allowance.
However, growth has accelerated and unemployment is falling.
Deutsche Bank believe the chancellor may be tempted to ease up on deficit reduction in the run up to an election. The bank suggests that a cut in corporation tax could also be brought forward this year.
IHS Global Insight say the likely approach will be a "steady as she goes" budget, with limited scope for new initiatives but that would likely be focused on supporting exports, business investment, house building and raising tax free personal allowance limit.
PwC believe we could see an increase in taxes on expensive property due to the policy's appeal to both sides of the coalition albeit for different reasons. Such a tax hike may take the form of a new band of council tax for properties over £3m or an extension of the Annual Tax on Enveloped Dwellings.
Ros Rowe, head of property tax at PwC, says:
The Chancellor will be mindful of how any changes to property tax affect broader overseas investment. At a time when more investment in housing is important, we need to attract further money from offshore investors.
With the average house price now around £250,000, the point at which stamp duty rises from one per cent to three per cent, Osborne my be tempted to raise the threshold to £300,000.
The four major accounting firms are also expecting the chancellor to make a move on the top rate of stamp duty, with a hike in the top rate from seven to eight per cent. The IEA has called for stamp duty to be abolished.
Springtide Capital is hoping for an increase in the stamp duty threshold for all first time buyers up to the value of £600,000, in line with the terms of the Help to Buy scheme.
A poll conducted by the Institute of Directors (IoD) of 1,000 of its business members, showed support for prioritising an expansion of the basic rate tax band, meaning that workers would not start to pay the 40 per cent higher rate of tax until they earn £50,000.
KPMG polling showed a fifth of firms want a less expansive threshold for the 40 per cent rate of income tax.
IHS do not expect George Osborne to give into calls to raise the threshold of the 40 per cent tax rate.
The most popular option for business rates among IoD members would be a doubling of the cap for relief for small businesses from £6,000 to £12,000. However, PwC believe there is little chance of serious reform before the election.
Income tax vs NIC
Osborne may come under some pressure to raise the personal allowance to £10,500 from 2015. However, there is significant argument as to whether tax cuts would be most effective when directed at the personal allowance or national insurance contributions (NICs).
According to polling from KPMG, more than a fifth of firms backed a reduction in national insurance contributions, coming out as the most popular potential policy in the budget.
The Adam Smith Institute (ASI) has recommended the personal allowance and employee national insurance be merged and set at £13,000 after the minimum wage rises to £6.50/hour.
Commenting on the proposed change, research director Sam Bowman said:
National Insurance reform must be top of the agenda in this year's budget. At a minimum, Ben Gummer MP's proposal to rename it the 'Earnings Tax', to show workers that NICs are just another form of income tax, should be adopted, and employers' contributions should be cut back as much as possible.
Help to Buy
The chancellor has already announced an extension of the controversial Help to Buy scheme. The government originally planned to the end the program in 2016.
Springtide Capital has recommended that the chancellor target the scheme according to different requirements of individual postcodes, so as to address the growing disparity between London and the rest of the country.
The Adam Smith Institute recommended the scheme be wound down ahead of schedule to reduce house prices in London and the South East.
The chancellor could decide to bring in tough new rules governing stamp duty on shares bought electronically. As a consequence more transactions could be brought into the tax.
PwC expect to see a series of measures to tackle tax avoidance and prevent new schemes from being developed. Such measures may include proposals requiring taxpayers to pay tax under dispute upfront where they have notified HMRC about arrangements that could breach the General Anti-Abuse Rule or where they have registered schemes under the Disclosure of Tax Avoidance Scheme rules.
It is being widely predicted that George Osborne will freeze the carbon pice floor. The escalating price of carbon has been a drag on UK competitiveness particularly in the face of the US shale gas revolution and a collapse in European carbon prices.
Skills shortages are negatively impacted many UK businesses while crackdowns on non-EU migration are making the situation worse.
Julia Onslow-Cole, head of global immigration at PwC Legal, says:
The regulations are particularly onerous for small to medium sized businesses.
Although no new announcements on immigration are expected, PwC hopes that any rhetoric on immigration considers how skilled migrants can help UK businesses grow and compete.
Bank of England mandate
It is unlikely that the chancellor will outline any changes to the operation of the Bank of England. However, should he choose to do so, the ASI recommend he change the Bank's mandate to target the level of nominal spending in the economy along a predetermined trend.
Sam Bowman, research director, said:
By stabilising nominal income growth at a predictable rate, the Bank would provide macroeconomic stability to the economy that would prevent any repeat of the deep recession we are only now starting to emerge from.
Think tank Reform has called for the creation of an independent body with the power to raise and lower taxes. The think tank points out that 21 of the last 25 official government forecasts have projected that the budget would return to surplus, which has never transpired
Abolish the budget
The IEA has called for the all encompassing budget to be dispensed with and replaced with a short statement on tax changes and borrowing required to meet public spending obligations.