George Osborne's latest block buster on release Wednesday 8 July - 12:30pm. The euphoria following the UK General Election will quickly die down tomorrow as the Conservative majority government reveals the first Tory budget in 19 years. Expect the focus to be squarely back on how the nations debt mountain is to be tackled.7 July 2015
Free of Coalition influence and bouyed up by the popular mandate delivered in the polls Chancellor Osborne will launch Austerity 2.
In the run into the election a great deal of unfunded promises were made and these will have to be paid for whilst delivering on the commitment to eliminate the deficit before the end of this Parliament in 2020.
Budget measures are increasingly trailed these days and we already know that £12bn of savings will come from housing support and tax credits.
Sunday trading laws will be relaxed (not really a budget measure) but the Chancellor might use this to bolster improved GDP projections, along with evidence of improved tax receipts. Annual deficit forecasts could fall from £75bn to £60bn, unless the Chancellor decides to soften austerity a little. I suspect he might just feather the throttle on the bank levy instead, perhaps by announcing a tapering of the rate over time.
Pensions will get further attention. Chancellor Osborne has form here having taken a very bold step already, allowing full encashment of pensions and scrapping the requirement to purchase a compulsory annuity. It seems he may be eyeing pension tax relief for higher earners which has already been restricted, but may scale back or scrap it completely for those earning over £150k, which seems to be his definition of the really well off.
IHT will see the threshold increase to £1m through an allowance combination and there may be help not just for those families trying to pass on the value of the family home, but for those who are still trying to get on the housing ladder.
The BBC will provide free TV licenses costing £650m in total for the over 75’s as part of their funding ‘settlement’ with the Government.
Non Doms taxation, an election battle ground between Labour and the Conservatives will be addressed. The hereditary status is pretty hard to justify on any rational grounds and will go, the annual remittance charge will go up and the only real question is will he go any further.
Finally £5bn of savings from tax evasion and avoidance are promised. The well is dry on evasion unless the Chancellor tackles the cash economy more vigorously, with the law of diminishing returns evident in the array of voluntary disclosure schemes and special penalties already introduced. Abusive tax schemes have been quite rightly tackled.
There cannot be much further to go before the Chancellor bites into tax planning; the legitimate use of allowances, reliefs and offsets. Restrictions here are increased taxation in all but name, but tend to be less well understood and more quickly forgotten.
Let’s be in no doubt this Chancellor has aspirations to leave a real legacy and will be encouraged to be radical by his friend and confidant, Lord Lawson, arguably the only genuinely reforming Chancellor of the last 50 years.
I suspect a rabbit or two will come out of the hat. Speculation about reversing tax relief on pensions, that is scaling back relief on the way in, which is hugely expensive, and scaling back tax on the way out, may be justified. Cash-flow wise this would give an enormous boost to government finances. It could though affect an already dismal savings ratio and cost more in the very long run due to increased longevity.
At around 1:30pm tomorrow we will all know!