Budget 2014: Will Osborne pull rabbit out of the hat with 40p tax rate?

By

Matt West

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Speculation is mounting that the Chancellor of the Exchequer could pull a rabbit from his red box later today – with a front-runner possibility of a higher than expected increase to the 40p tax threshold.

George Osborne has promised ‘a Budget for a resilient economy’ and aides stressed that despite the

economic revival the package would be ‘steady as she goes’, in order to keep the public finances on track to balance the books by 2018.

He is expected to unveil a further rise in the personal allowance from £10,000 to £10,500 from next April, going beyond the

promise made by the coalition in 2010. He is also sure to

confirm increases to childcare tax-breaks flagged up at the weekend, among other measures to

help those on lower and middle-incomes.

Chancellor George Osborne left Downing Street today amid a flurry of speculation over what he might have kept in reserve from a heavily-trailed Budget.

But expectation grew this morning that he has saved a surprise announcement to wow voters and Tory backbenchers, aided by upgraded growth forecasts from the Office for Budget Responsibility that could lower borrowing in the years ahead.

Among the strongest contenders is a hike in the level at which the 40p tax rate is paid. The Chancellor has been under increasing

pressure in the last month from his own backbenchers who feat the party

could be seen as not doing enough for their core vote.

They have called for the 40 per cent higher tax rate threshold be

raised from its current level of £41,500 to around £44,000, arguing that below-inflation rises to the threshold have dragged

millions more into the bracket.

Increases in the income tax threshold mean basic rate tax payers will be £800 better off in 2015-16 than in 2010.

One in six people in Britain now pay tax at the 40p rate compared to one in 20 when the tax was introduced in 1988.

Another

dramatic move would be an increase in the National Insurance threshold to match the

personal tax allowance – which would chime with Mr Osborne’s longer-term

aspiration of merging the two systems.

Others

still have called for reform of the Stamp Duty thresholds which have

also brought in millions more homeowners as house prices have rapidly accelerated.

The

current Stamp Duty thresholds are 1 per cent for properties over

£125,000 and under £250,000, 3 per cent for properties above £250,000

and 5 per cent for properties above £500,000.

Some have been calling for him to encourage employment by extending the £2,000 NI allowance for firms who take on staff.

After initially forecasting strong growth for the full five years of the coalition, the Office for Budget Responsibility downgraded its predictions for 2011 and 2012 but is now showing stronger growth fro 2014 onwards.

The Treasury has been given more room

to manoeuvre by the stronger performance of economy over recent months,

and the OBR will upgrade growth forecasts

from the Autumn Statement.

But

Mr Osborne has insisted he will not ease the government’s long-running

austerity programme – which has already seen the deadlien for a balancing of the books put back to 2018 – in order to fund major giveaways. He may also want

some scope for a pre-election giveaway next year.

Labour leader Ed Miliband said voters should expect ‘a Tory Budget that claims our economy is fixed while families are £1,600 a year worse off’. Any significant action is likely to be seized on by Labour as evidence that the Conservatives are the party of the better-off.

Mr Osborne is also widely expected to maintain the freeze on fuel duty, and has also been under pressure to avoid increasing tax on wine and spirits – after scrapping the duty escalator on beer last year.

Ahead of the Budget, a survey today showed that the sense of financial wellbeing of British household’s dipped slightly in March but remained near its highest level for five years.

Markit’s Household Finance Index for March slipped to 41.9 from February’s 42.1, which had been the highest reading since the survey started five years ago, but the mood was still classed as pessimistic overall, with any reading below 50 representing a negative outlook.

There will be an eye-catching move to replace the existing pound coin with a thruppeny bit style design to tackle a rise in the numbers of fakes of the present version in circulation – estimated to be 45 million.

‘Today I will deliver a Budget for a resilient economy – starting with a resilient pound coin,’ Mr Osborne posted on Twitter along with a picture of the new design.

The Sun reported that tax on bingo halls will be cut from 20 per cent to 15 per cent in a bid to woo the game’s legions of female fans.

Labour is unveiling a Budget poster in London and Birmingham today that will claim ‘hard-working people are £1,600 worse off with the Tories’. An image of the poster – featuring a nurse holding a red shopping bag with the slogan ‘We’ve all got budgets George’ – was posted on Twitter by Mr Miliband.

Cutting the tax on bingo will increase prizes and lead to investment in bingo halls, campaigners claim.

‘Today is going to see a contrast between a Conservative budget that claims our economy is fixed and family budgets that are £1,600 a year worse off since the general election,’ he said.

‘That’s why the top priority for the Budget today has to be to tackle the cost of living crisis that so many millions of families are facing.

‘I hope we don’t see complacency from the Chancellor today because so many families across the country are incredibly hard pressed, they’re seeing their wages falling, they face 24 Tory tax rises
since 2010.

‘What I hope we see from the Chancellor is understanding of the difficulties families are facing and a response to make life easier and better for them.’

Paul Johnson, director of the Institute for Fiscal Studies, told BBC Radio 4′s Today programme: ‘The economy is getting a lot better now but it has been pretty bad for the last several years with the result that the Chancellor wanted the deficit essentially sorted by next year but actually it is not going to be until 2018.

‘He’s set himself the task of getting down to zero borrowing by 2018 but we are still at over one hundred billion pounds so that’s a long way still to go.’

He added: ‘If the Chancellor does have any tax cuts, and he may well do, he’s going to be taking that back with his other hand, tax increases elsewhere or even deeper spending cuts.’

Last night business leaders said the Budget was a ‘make or break’ moment for the economy and and called on Mr Osborne to focus on investment and exports.

New coin: The replacement £1 coin alongside the current version and the old threepenny bit.

They welcomed the cut in corporation tax from 28 per cent under Labour to 20 per cent next year – but urged the Chancellor to do more to boost business investment and trade.

John Cridland, director-general of the CBI, said, ‘We need the Chancellor to use his Budget to support business investment and encourage firms to get on planes to sell their wares around the globe by getting behind our exporters. This Budget really is make or break.’

The British Chambers of Commerce said the focus should be on youth unemployment, training and enterprise to avoid a ‘lost generation’.

Director general John Longworth said: ‘Businesses tell me they want to hire young people. Yet many cannot afford to take the risk.

‘If the Chancellor wants to avoid a lost generation among today’s 16-to-24-year-olds, he must use the Budget to help businesses take on and train up young people, whether they are going straight into jobs or into apprenticeships.’

Comments (21)

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Winseer,

Chatham, United Kingdom,

17 minutes ago

A budget for latchkey children – but not the responsible parents who actually bring their own kids up, and take a cut in income to do it.

Boo the Tories off the stage for another decade in 2015 I say.

And what’s paying for all the middle-upper class tax cuts? – This is going to make Ed Balls look like an Economics Don I reckon! Since austerity isn’t over yet, how the hell can ANYONE get a tax cut?

Watch the PSBR soar this summer… “Oh it’s all Labour’s fault that we inherited” we’ll be told as usual.

I won’t be voting red OR blue next year. Let’s leave Europe and make our own future away from the liabilities that being “in Europe” represents instead.

Sally,

London, United Kingdom,

41 minutes ago

Does this raising of the personal tax limit apply to everyone even 45% tax payers?

MattC.,

Leicester, United Kingdom,

13 minutes ago

Technically yes, but the 40% limit has always been reduced accordingly so noone earning £42k (ish) or more actually benefits. It’s actually a very effective way to give the lower paid more money in their pocket without giving the smae or more to the super-rich or increasing bureaucracy (such as adding a new tax bracket).

Alan,

Kettering,

45 minutes ago

In the last few years every time the personal allowance has been raised the point at which 40 percent tax becomes payable has reduced negating any benefit to those tax payers. The point about reduced National Insurance only applies to earnings above the threshold, this is roughly 40K. Up to this point 12 percent is payable. Earnings of 30K with benefits in kind of car and health insurance are likely to push someone above this limit, hardly what you would call rich. You don’t have to have an actual salary of 41K plus to pay tax at 40 percent.

The Hovis Trader,

Halesworth,

1 hour ago

The government is a giant business, it needs money in to give money out, it’s very unique in the fact that it can borrow well beyond it’s means at the drop of a hat (usually to fund wars), but the fact always remains that the books eventually have to balance and that’s where the normal people of the UK come in – TAX.

You will pay somehow for those books to balance, some taxes are more obvious than others, hence the annual shake up of the budget, makes them look good and as if they’re helping you, but Peter always manages to rob Paul in this game

Sickofallpoliticians,

Glasgow,

1 hour ago

I expect the usual fleecing of the average worker, and the rich to gain more as usual!!!

davidr,

Newark, United Kingdom,

1 hour ago

I know 12 year olds that have a better grasp of economics than Ed Balls

davidr,

Newark, United Kingdom,

2 hours ago

As Mr. Osborne has only taken away from Pensioners [freezing "granny tax", reduced winter fuel payments etc.etc.;] I expect nothing for us today ;

cynical,

London, United Kingdom,

1 hour ago

Pensioners, do me a favour. The largest demographic of homeowners who have experienced huge gains in paper wealth simply due to the year they were born. How about the millions of unemployed under 30s?

Paul,

London, United Kingdom,

2 hours ago

It is like the Man.Utd. back 5 with all the leaks!!

The Equaliser,

Bromley, United Kingdom,

2 hours ago

I look forward to Ed Balls making his scathing reply to whatever the budget reveals. Perhaps this year he will actually explode.

davidr,

Newark, United Kingdom,

2 hours ago

I know 12 year olds that have a better grasp of economics than Ed Balls !

DAME IAINDUNCANSMITH,

TORY REGIME LAND, United Kingdom,

2 hours ago

RAISING THE PERSONAL BENEFITS ALL, I WOULD SET THAT AT £20,000 THEN 20%, RAISE TOP RATES TO 80% ON OVER £80,000 RISING TO 99% ON EVERYTHING OVER £300,000,,,,SOMEBODY EARNING £301,000 WOULD STILL TAKE HOME MORE THAN 2 TIMES THE NATIONAL AVERAGE

peter,

wirral, United Kingdom,

1 hour ago

stop shouting while you are spouting about killing off incentives

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Budget 2014: Will Osborne pull rabbit out of the hat with 40p tax rate?