Political Notebook – Budget Preview 2012

Political Notebook – Budget Preview 2012

George Osborne will tomorrow fire the starting gun on the 2015 General Election as he seizes control of the Conservative Party’s political machine.

The Chancellor has won his battle with David Cameron to slash the 50p top rate of tax, underlining his dominance in the Coalition government. The debate over child benefit will go down to the wire tonight.

He has ruled it is better to do away with what he believes is a pointless hit on wealth creators than to be hostages of a Labour leadership he thinks is still wedded to class war.

Mr Osborne will give LibDem deputy Prime Minister Nick Clegg the fig leaf of a “tycoon tax” he needs to distance his Party from accusations they are siding with the rich.

Labour leader Ed Miliband will unleash attack dog Ed Balls to deliver a sustained and brutal battering – accusing the Conservatives of caring only for their wealthy friends.

Some think the Chancellor is falling into a Labour trap. But Osborne is no fool when it comes to politics.

He judges that these attacks will allow the Coalition to publicise much easier their intention of raising the earnings threshold to £10,000 for millions of workers in Britain at the same time.

Tomorrow’s Budget will be overshadowed by a breach of trust which will shape the future of the Coalition and British political history. The decision by senior LibDems – I understand it was a collective move – to leak details of the Chancellor’s reduction in the 50p rate to the Guardian is seen by some at Tory high command as an act of pure political sabotage.

It will make it hard for some at the top of the Conservative Party to trust their LibDem colleagues on big policy secrets in future.

There is real anger at the heart of numbers 10 and 11 at the LibDem move which forced Mr Osborne to adopt measures aimed at cutting loopholes for multi-millionaires and robbed him of a rabbit up his sleeve.

The Budget will be revenue neutral. But it will still be radical.

Cutting the top rate of tax is a huge step and one which will demonstrate more than any other that UK plc is open for business to foreign investors and talent.

Handing our roads to the private sector is immensely contentious but long overdue – as long as it’s done at the same time as axing road tax.

Allowing shops and businesses to trade throughout Sunday is a bold gesture aimed at making sure the consumer economy is thriving.

Rewriting Britain’s planning rules and cutting business taxes faster will be a rocket booster for entrepreneurs.

George Osborne has his sights firmly fixed on the May 2015 General Election and tomorrow’s Budget is the first move.

James O’Shaughnessy

Cut through the noise around the Budget and put yourself in George Osborne’s shoes. What would your aims for Wednesday be? The backdrop to tomorrow is the difficult Autumn Statement, where the Chancellor had to admit that the fiscal retrenchment was going to be a much harder slog than originally planned.

So his first priority will be to provide reassurance that the revised fiscal strategy is on course, and indeed that there might be some tiny hints of light at the end of tunnel. The deficit for 2011/12 looks like being slightly lower than the OBR forecast, but don’t expect that to mean too many baubles being dangled.

George Osborne will be well aware that the debate around the Budget that’s taken place over the last four weeks – whether or not to give a tax cut to very, very rich people – won’t have done the Conservative brand many favours.

Budgets are one of the few times in the year that politicians can cut through to ordinary voters, and Osborne won’t waste that opportunity. He will want to present some ‘retail’ offerings directly to the kind of people who decide elections. A more rapid extension of the income tax allowance looks fairly certain, as well as some movement on the child benefit ‘cliff-edge’. And, although the Chancellor appeared to rule out further action on fuel duty last month, given how well it polls there is still an outside chance of some additional relief being included.

The Chancellor will also be toughening up tax avoidance loopholes in order to show that the very rich are not the main beneficiaries of this Budget, despite the 50p issue.

Finally, Osborne knows he needs to send a strong message on jobs and growth. Further reductions to Corporation Tax in the future look likely, as well as the credit-easing scheme launched last Autumn. But without much money to play with I expect him to look to other ways to boost growth, with a fulsome endorsement of the pro-growth National Planning Policy Framework and more plans to increase infrastructure investment taking centre stage.

But more than anything, expect this to be presented as a very Conservative, pro-enterprise and pro-consumer Budget by a Chancellor who already has an eye on the next election.


Budget 2012: What to expect

Personal Tax
The 50p rate will drop to 45p and eventually 40p. The Chancellor needs to be seen to support the lowest paid, so the increase of the personal allowance to £10,000 will be fast-tracked. The decision on cutting tax relief on pension contributions for high earners will go down to the wire, but the Chancellor is unlikely to include the measure. A Mansion Tax is highly unlikely but Council Tax bands could be revised to hit expensive homes harder. There is also likely to be an announcement on a so-called “Tycoon Tax” – a policy touted by Nick Clegg. The principle behind the policy is to ensure the very wealthy pay a minimum amount of tax but further detail on what this would look like in practice has been very sketchy.

Tax relief for decommissioning oil rigs will be frozen, ensuring the sector can better predict the cost of scrapping old infrastructure and free up cash for investment.

Sunday trading laws will be suspended during the Olympics. If the move boosts the retail sector, it could become a permanent measure. Alcohol and tobacco duty will go up as planned, with minimum pricing for alcohol potentially being trailed in the Budget.

The manufacturing sector stands to benefit from broader initiatives like a drop in Corporation Tax and a relaxation of some employment laws. The Chancellor will almost certainly highlight the sector’s contribution.

Financial Services
The Financial Services sector was a focus on the Government’s first year and with so many policies in train, is unlikely to feature heavily in this year’s Budget. However, a suite of anti-avoidance measures might make life difficult for some in the City.

The Chancellor remains tight-lipped over whether he will take any further action to tackle high petrol prices – given its polling popularity a delay in the fuel duty increase could still be announced in spite of Osborne appearing to rule it out last month. A twice-inflation increase in Air Passenger Duty looks likely to go ahead as planned.

Development and Construction
The Chancellor is likely to announce the long awaited National Planning Policy Framework, which will free developers from burdensome planning regulation and stimulate growth in the sector. The Chancellor will also look to close Stamp Duty avoidance loopholes.

Communications and Technology
Any big announcements will be held back for the Communications Bill Green Paper, due to be published in April. A tax break for television and film companies could be introduced, with 80% of production costs receiving a 25% tax credit.

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