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Budget 15: Conservative Chancellor to put his own stamp on parliament

Budget 15: Conservative Chancellor to put his own stamp on parliament

🕔06.Jul 2015

No longer constrained by his former Liberal Democrat coalition colleagues, the Chancellor will be able to put his own stamp on fiscal arrangements for the next year, and take the opportunity to set out priorities for the current Parliament from 2015 to 2020 writes Paul Dale.

One thing’s for certain: austerity is here to stay, for the time being.

The Office for Budget Responsibility’s last forecasts – published alongside the March budget – suggest further retrenchment in Government spending over the next three years. It is likely cuts in 2016-17 and 2017-18 will be twice as deep as any annual cut in the last Parliament, with further cuts in 2018-19 of a similar magnitude to those implemented by the coalition.

Much of what can be expected from Mr Osborne’s Budget was trailed in the Conservative General Election manifesto. We know, for example, that the income tax personal allowance will rise to £12,500, rewarding low earners, and that the inheritance tax threshold for married couples will rise to £1 million, especially pleasing to middle class voters in the south where £1 million homes are not uncommon.

The biggest ‘unknown’ is how the Chancellor intends to find the £12 billion in savings from the welfare budget promised by the Conservatives. But he confirmed on the BBC’s Andrew Marr programme yesterday that the savings have been found.

Having ruled out cutting pensions and child benefit, this leaves only a small number of potential targets. In a speech last week the Prime Minister David Cameron criticised what he called the ‘merry-go-round’ of tax and benefits to which some families are subject, suggesting that tax credits are likely to be in line for the chop.

Also in the firing line is housing benefit for under-25s and the benefit cap, which will be reduced to £23,000, or possibly to £20,000 outside London and the south-east.

On tax, the Conservatives’ pledge not to raise income tax, VAT or national insurance over the next parliament will be enshrined in law, giving them little room for manoeuvre. This makes the necessity of cuts acute, especially given the chancellor’s ambition to run a budget surplus, alongside the added pressure of promised increases in tax thresholds.

Higher earners will shoulder some of the burden as annual pension tax relief is set to be reduced on a sliding scale. Although this group may not lose out for long as rumours fly that Mr Osborne will take the bold step of reducing the top rate of tax from 45p to 40p, a measure that would delight the business community.

Having secured a majority, however slim, the Tories’ consider themselves to have been given a mandate to follow through on public spending reduction pledges, made during the election campaign. The level of cuts will require already squeezed departments to make further savings, with only the NHS and international development ring-fenced.

As is usual for Budgets in modern times, the Government has dispenses with just relying on pre-Budget leaks, but using newspaper interviews and their own penned pieces as weekend TV interviews. So, we already know about initiatives in housing, inheritance tax and the TV licence for over-75s.

The most controversial areas will probably be defence and policing, given the natural level of resistance within the Conservative Party to see these areas shrink.

Other subjects likely to come up are infrastructure spending and the northern powerhouse, as George Osborne seeks to set out his long-term vision for the country, and paint himself as a potential future leader.

Overall, it will be a chance for the new Government to stamp its authority over the Parliament, building on their record and emphatically erasing the memory of the Liberal Democrats.

Tomorrow on the Chamberlain Files, we’ll spell out what we think may be in the Chancellor’s Budget bag.

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