Budget 2013: What can we expect?

George Osborne

When George Osborne stands up to deliver his 2013 Budget speech, he's hoping for a popular budget: one which won't be derided as an omnishambles, but will be remembered as the vote-winning popular Budget which helped the country and the voters get back on their feet.

So what are his chances? What's likely to be in the Budget?
Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, points out that when the Chancellor gives with one hand, he's going to have to take away with the other. She says: "The shocking state of the public finances means that the Chancellor has, fiscally, little room for manoeuvre. It is widely expected that the Budget will be broadly fiscally neutral."

Already announced

This Budget has proved slightly more water-tight than the last one - which leaked like the Titanic. However, there are a number of things that have already been announced: most notably at the weekend when he unveiled state pension and social care changes.

He said that the shake-up of the state pension system would be brought forward to 2016 - alongside the introduction of a cap on the amount of money anyone would ever be expected to spend on care in their old age. This would be capped at £72,000 - down from the £75,000 announced in the House of Commons.

David Cameron and Nick Clegg have also announced a tax-free childcare scheme. There are few details as yet, but the government claims it will be worth up to £1,200 for each child under 12 and it will be phased in from Autumn 2015. It will apply to those working parents where each earns less than £150k, and where they are not in receipt of any tax credits. It will replace the current voucher scheme.

News of spending cuts has also been leaked - after Osborne told ministers of his plans. Most departments will need to cut their budgets by 2% - this is on top of the 3% cuts over the next two years which were announced in the Autumn Statement. Only health, defence and the taxman will be spared. The savings will be ploughed into infrastructure projects, which are designed to boost growth.

Then there are a number of things which seem fairly likely. The government has stated its aim of pushing the personal tax allowance to £10,000 by 2015, so we can expect another increase this time around. Next month the threshold will jump to £9,440. Announcing something around £9,600 isn't out of the question.

A popular move of recent budgets has been the scrapping of fuel duty increases, so Osborne may also choose to cut the planned Autumn increase.

Higher taxes

Given Osborne's penchant for funding changes at one end of the tax spectrum with tweaks elsewhere in the system, we can expect tax changes to pay for this. The experts are divided on what this will look like - and have suggested everything from changes to National Insurance for the self-employed, to lowering the higher-rate tax threshold.

National Insurance is an easy target, because the self-employed currently pay less than employed people, so it can be sold as an issue of fairness - especially with the flat-rate state pension on the horizon.

Anti-avoidance has been a popular announcement for the last couple of Budgets, and may help to balance the books. We are expecting an anti-abuse rule to come out shortly, but in the interim Osborne could try some more specific measures.

Then there's inheritance tax. This has already been frozen until 2019 to help pay for social care costs. However, this alone is not enough, so there's a chance of further changes.

Tax on alcohol and cigarettes are already on an escalator - rising at least 2% faster than inflation. In the last Budget alcohol duty rose at 2% above inflation and tobacco at 5% above inflation. This sort of thing wouldn't be unexpected again this time round.

Research from Lloyds TSB found that 55% of people expect to have less money in their pockets as a result of the Budget. A quick glance at the list of possible tax increases would seem to support that.


Osborne could address the criticism he has had over a lack of investment in smaller companies. He could address the failings of the Funding for Lending Scheme. Alternatively, there could be some movement on tax-relief for investing in smaller companies through vehicles like the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme.

He may also provide more support for the beleaguered house-building industry. There is not likely to be any change to Stamp Duty - as this would be too expensive - instead we could see the NewBuy scheme extended beyond 2015.

Pensions, however, are likely to be spared. They were hammered in the last Budget, and the industry has been hard at work lobbying for a quieter time - with threats that it will kill pensions saving altogether if Osborne doesn't leave it alone.

The mansion tax is another definite outsider. The Conservatives are not a fan of the policy, especially since the Labour Party adopted it.

However, overall we should expect a reasonably quiet Budget. As PriceWaterhouseCoopers points out, with the general election looming in two years, there isn't time to enact any major policy changes before the vote, so the government won't gain any political capital from any changes it announces now.

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