What's in the Budget 2016? What we know so far

The Budget 2016 must have been brewed up in a colander, as details have been leaking all over the place since the weekend. Not satisfied with just letting the odd snippet emerge through back channels, the Chancellor and Prime Minister have been announcing the kinds of things Osborne would normally be saving to pull out of his hat at the end of his speech.

This is what we know so far.

Help to Save

This is a new savings scheme available to those on Universal Credit or working tax credits. The idea is that if people on low incomes can somehow manage to put money aside, the government will add 50% to every penny they save - up to £300 a year.

If it works, it could change the way people think about meeting major expenses. Unfortunately, the practicality of the scheme is open to debate. The government will only add the top up when the cash has been put away for two years (at which point they get up to £600). If they want to continue to benefit, they will need to tie the money up for a further two years. It's questionable whether this kind of saving is a realistic prospect for people on low incomes.

Infrastructure for the North

Osborne has announced new transport links for the North - investing £300 million. He hasn't specified exactly what will be done, but will consider everything from a new road tunnel under the Pennines, to upgrading the rail link between Leeds and Manchester. We can expect the phrase 'Northern Powerhouse' to come up more than once.

£4 billion of cuts

George Osborne appeared on the Andrew Marr show over the weekend, and explained that £4 billion more cuts would have to be made in order to fill a £18 billion black hole in his finances. The gap opened up after the country didn't grow as fast as he expected, and tax receipts fell short, so as a committed Conservative, he plans to fill the gap with spending cuts.

That's another 0.5% of all government spending, so nobody is buying his argument that it's not a great deal in the grand scheme of things. As yet, we don't know where the axe will fall. We don't know when it will fall either, as some people expect cuts to be scheduled for 2019 and 2020.

It's worth pointing out that there has been some discussion about this announcement. Some commentators think he made the comment over the weekend, so it wouldn't overshadow the entire budget. Others think he is managing our expectations, so we expect the worst, and if he delivers anything less depressing than massive cuts, it will be reported more positively.

Disability benefit cuts

The Disabilities Minister has confirmed that there will be a cut to Personal Independence Payments - which could be slashed by anything up to £150 a week. In order to qualify for the payment you have to build up enough 'points' - with more points awarded for each huge hurdle you face in life. The government plans to cut the points you receive for mobility problems. The reason for the change is unclear - except for the fact it could cut £1.2 billion from the benefits bill. This will kick in from 2017.

Tax crackdown

We can expect lots of tough talking on this subject - to offset all the negative press Osborne received about the paltry sum he managed to persuade Google to pay in tax. There have been plenty of rumours (including those of a new multinationals tax), but the only one that has been confirmed is a crackdown on public sector staff paid through personal service companies - which is a way of avoiding tax. The BBC changed its rules to block this in 2012, and the rule will spread everywhere from Whitehall to the NHS, Channel 4 and the police.

Higher minimum wage

When the government announced the introduction of the living wage for those aged 25 and over, it caused a headache for those aged 21-24 - who will remain on the minimum wage. When it is introduced next month it will mean over 25s will earn at least £7.20 an hour, but those in their early 20s will earn £6.70 an hour. In an effort to close the gap, the minimum wage will rise to £6.95 an hour in October.

Raised threshold for higher rate tax

There has been speculation that Osborne could raise the threshold at which people pay 40p tax. This is already scheduled to go up to £50,000 by 2020, but there have been plenty of rumours that Osborne plans to speed things up. This would cheer up higher earners immeasurably.

The rumours

In addition to these announcements, we have had a number of rumours, which cannot be confirmed, but need to be considered.


More tax for motorists

Osborne froze fuel duty in 2011, but there's no guarantee he'll continue with the freeze - particularly given that he didn't pledge to do so in the Autumn Statement. Increased duty is likely because 2p of duty would bring in £1 billion - which would come in handy. Osborne may also reason that he's likely to get away with it, given what has happened to the price of petrol.

In autumn 2014 petrol was 129p a litre and diesel was 133p. Now pump prices have fallen to around £1 a litre for both fuels - as a result of the plummeting cost of a barrel of oil. He could argue that even with an extra 2p duty, people are paying less at the pump. The RAC warns, however, that this could be a mistake - especially given that petrol prices are on their way up again.

There are also rumours from 'Westminster sources' that the government may hike insurance premium tax again. Back in November it rose from 6% to 9.5%, and the AA has warned it could rise another 3% in the Budget. This affects home insurance, car insurance, and breakdown cover, and the last rise alone cost households an average of £100 a year extra each.

Tax on tobacco

Sin taxes are always a useful way for Osborne to bring in more cash. However, given that he's keen to keep voters on side until the Europe vote is out of the way, he's likely to confine any hike in taxes to less socially accepted vices - namely tobacco.

Threats to salary sacrifice

Osborne has mentioned before that these schemes are under scrutiny. They are a handy way for people and their employer to avoid paying tax on part of their salary, because they agree with their employer to take a salary cut, and have an equivalent sum paid through a tax-efficient benefit - including pensions and childcare vouchers.

Around 70% of employers use this approach to cut their pension costs, which is tax Osborne is keen to claw back. He could put an end to these schemes, or he could scrap the NI saving that employers make on pension contributions. This would be a huge cost to employers, but wouldn't do as much political damage with the electorate as other major pension changes.

More new homes

Osborne seems to mention new homes in every Budget, and he could do so again this time around too. He has been consulting on a Starter Homes initiative - which would relax planning rules in return for offering discounted properties to first time buyers under the age of 40 - which could be announced. He is also expected to launch a 'garden suburbs' plan, encouraging councils to build up to 5,000 homes on the outskirts of existing towns - after a much-discussed 'garden cities' plan fell by the wayside.

Pensions

The most notable absence from the Budget will be pensions reform. This was widely expected, as the government has been consulting on a range of possible changes to the way pensions are taxed. Osborne was thought to favour a massive re-think which would have made pensions more like ISAS. Meanwhile, the industry is known to have favoured tinkering with the current system - to offer less tax relief for higher earners. The political risks involved at a time when the government is already going through the Brexit turmoil have persuaded Osborne not to make massive changes for now.

The experts are not ruling out some sort of change to pensions, however, as there could still be tinkering with things like the annual limit or the lifetime limit - which determine how much you can invest tax-efficiently into a pension. He could also tweak how much unused annual allowance people can carry forward each year.

NFU Mutual has also floated the idea of a 'help to buy' pension - which would allow people to invest tax efficiently in a pension and withdraw a lump sum before the age of 55 in order to buy a property of their own. Its research showed that a third of young people would be more likely to invest in a pension if it had this facility - but it's fair to say that even for George Osborne this would be a hell of a rabbit to pull out of the hat in this Budget.