What will be in George Osborne’s Budget on Wednesday?

Well, the main thing will be the signalling of what is going to happen over the next couple of years, probably in the rundown to the next general election.  There is some serious juggling going on politically between what he should do, and what he can do.

The main fight is between stimulating growth in the economy and at the same time remaining fair within the tax system.  Almost everyone accepts that reducing taxes and regulation on businesses, large and small, is what is needed to get the economy going – the problem is that some of this has political repercussions.  There are a lot of people who equate ‘business’ with ‘rich’, and politically this is the stage to which the chancellor must also play.

Most business taxes are quite opaque to the man on the street (which is where firms like ours come in); so much of the workings will be rolled out over a period of time.  What we will be looking for in the Budget are the waving flags that signal intention and direction.

Let me briefly set out three areas where I think there could be movement:

  • Employment tax and regulations.  There are some costs which fall only on the employer.  These have been rising over the last couple of years, and are scheduled to continue to rise.  The Chancellor could look to put a brake on this, to make labour-based businesses more competitive, and to make the hurdle to new employment smaller.
  • Top rate of income tax at 50% – I have long been on record as saying that this top rate should and must be temporary only.  Whilst it makes a good headline, it is relatively straight forward to avoid at a sweep, which totally negates the point.  What is more concerning though is that the steps which a business would take to avoid the 50% rate may not be the right ones for that business.  A classic case of tax driving business decisions – always to be avoided.  I would therefore hope to see the end of the 50% rate signalled, so that we know that it is temporary and can avoid giving bad long term advice.
  • Capital Allowances.  The 100% Allowances on the purchase of new equipment should I believe be continued at a higher level than that proposed (£25,000).  To reduce the allowance to £25,000 without compensating allowances elsewhere stops capital-based businesses investing, and has nothing but a negative effect on equipment-manufacturing industry.  It is too low.

This Wednesday’s Budget has the potential to be very far-reaching, even a seminal event.  It also has the potential to do absolutely nothing for confidence and economic growth.

Which will it be?

We shall see in a couple of days.