Budget 2015: what bad news will George have for you?

This Wednesday, George Osborne will present the first Budget of the new parliament and the first pure Tory Budget since he took the job of chancellor.

There has been some recent economic good news, including decent growth, low inflation and falling unemployment levels, so he has a bit more flexibility than he may have expected. But if you think that means George is about to cut taxes and give everyone a free hat then you may be in for a shock.

After all, he has pledged to cut a further £12 billion more from the welfare bill. £12 billion more in addition to the cuts we have seen so far.

And while many people will think that means hard times for the wilfully unemployed, the bad news is that only about £4 billion a year is spent on Job Seekers' Allowance. George is going to have to look elsewhere to find those cuts, so where will they come?

What counts as the welfare bill?

Last year the government began sending taxpayers information on how tax revenue is spent. The sums showed that a quarter of all state spending – a hefty £168 billion a year – is spent on welfare. Wow.

But dig a little closer into the sums, as the Institute for Fiscal Studies did, and you will see that spending is not all going on single mothers with 18 children from 19 different dads. In fact, £28.5 billion of that bill is from 'personal social services', which includes children in care and long-term care of the sick, elderly and disabled.

£20 billion goes on pensions other than state pensions (which were listed separately), so those are pensions to retired state employees like nurses and soldiers. £28 billion goes to pensioners through payments such as winter fuel payment, pension credit and so on, and £13 billion gets spent on housing benefit and disability living allowance.

In short, £12 billion off the welfare bill will be felt across the country, and not just by what the government likes to describe as 'shirkers'.

You should also remember that chancellors prefer to get the bad news in nice and early in a parliament, to give everyone a chance to forget about it by the time of the next election, so this could be the most brutal Budget for years.

So what bad news is predicted to be in the briefcase? Here's a rundown:

Cuts to tax credits

It's widely accepted that the chancellor will announce cuts in tax credits in his post-election Budget on Wednesday, which is causing real panic among some child poverty campaigners.

Analysis from the Social Mobility and Child Poverty Commission suggests that cutting tax credits would mean cutting the incomes of 45% of working families, as well as affecting around 2.6 million families without a working adult.

There's been outrage that the government announced plans to scrap the child poverty target, replacing it with a new scheme to report on educational attainment, worklessness and addiction, just before it is expected to announce these cuts.

The Institute for Fiscal Studies reported in May that reducing tax credits back to the levels of 2003/04 would mean a further 300,000 children are pushed into poverty.

Salary sacrifice culled

There has been some speculation that salary sacrifice may be reduced or even axed in this week's Budget. That's used by many people to cut the cost of childcare and as a way of paying money directly into their pensions. It can even be used to buy a subsidised bike under the Cycle to Work Scheme.

However, Andy James, head of retirement planning at Towry, warns: "With the government pledging prior to the election that it will not make any rises to income tax, national insurance or VAT for the duration of this parliament, it will need to find other ways of raising the money required to clear the deficit.

"It is sadly a very real possibility that salary sacrifice may be culled or reduced in this Budget."

Benefit cap to be cut further

In the Tory manifesto, they pledged to reduce the benefits cap to £23,000 from its previous level of £26,000. But over the weekend, Osborne revealed he actually plans a far harsher cut. It's now believed the chancellor will reveal that families living outside of Greater London will have their benefits capped at £20,000 a year, although the final cap has not been officially revealed.

This move could affect around 89,000 families. Back in March, the UK's Supreme Court warned that the benefits cap was not compatible with the UK's obligations to the UN convention on the rights of the child as it risked leaving claimants unable to feed, clothe or house their families.

Subsidised housing to be cut

Local authority and housing association tenants usually enjoy a subsidised rent, but this is almost certainly about to change. Osborne revealed at the weekend that the 340,000 English higher earners living in social housing would be forced to pay market rent from 2017/18.

It is expected that the chancellor will state that local authority and housing association tenants earning £40,000 or more in London or £30,000 in the rest of England will be affected.

Cuts to disability benefits

The BBC has seen leaked plans written before the election, suggesting that some sickness benefit claimants may be moved to receiving Jobseeker's Allowance rather than their current health-based benefits.

That would cut their income by around £30 a week, but it is not yet known if this will go ahead.

What else is coming?

On top of £12 billion of planned welfare cuts, Osborne has also promised to reduce departmental spending by £13 billion, suggesting further squeezes on state-provided services.

The chancellor has suggested he can save £5 billion by clamping down on tax evasion and avoidance, and it's being reported that he will demand the BBC cover the cost of free licenses for the over-75s, which would effectively be a cut of £650 million to the broadcaster's budget.

Whether Osborne also intends to pull out some sweeteners to soften the blow remains to be seen. It is certainly likely that he will have some surprises lined up for Wednesday.

Are these cuts fair? Will they affect you? Where should the cuts hit hardest? Have your say using the comments below.

Read more:
Replace high income tax rates with a wealth tax

Why we should merge income tax and NI

Will George Osborne kill pension and childcare schemes?