23 Mar 2011

Budget 2011: what to watch out for

It’s Chancellor George Osborne’s first full Budget. But as the Government tries to balance growth with the “age of austerity”, what will it deliver? Channel 4 News speaks to the experts.

Budget 2011

As the Chancellor prepared to open his red Budget box this week, he was hit by a rush of gloomy economic news.

Inflation reached a two-year high, government borrowing figures rose, and a report from the Institute for Fiscal Studies said that households are suffering their biggest drop in living standards for thirty years.

So can the Chancellor’s Budget change things? In one aspect at least it will: Mr Osborne will not be using the battered old red box used by most of his predecessors since Gladstone, as it has been retired.

In terms of tax giveaways…this is probably not possible on the grounds of affordability. PwC tax partner Barry Murphy

But opinions are still divided about what impact his Budget, expected to be a “steady as she goes” affair, could have on the big picture.

The Chancellor briefed his Cabinet colleagues ahead of his announcement, that his Budget would set out the Government’s plans for the economy and helping families.

The Prime Minister’s official spokesman told reporters: “The Chancellor took the Cabinet through the Budget and set out the main aims of the Budget, which are to set out our plans for reforming and rebalancing the nation’s economy and steps to help families with the cost of living.”

Barry Murphy, tax partner at PricewaterhouseCoopers, told Channel 4 News: “We expect there to be a few items that are helpful to people, but the Chancellor has said he does not want to tinker too much, so there will probably not be a raft of measures. He has also said he wants stability in the system, so there will probably not be wholesale changes.

“And in terms of tax giveaways – giving money back to consumers – other than at the margins, this is probably not possible on the grounds of affordability.

“In terms of market credibility, credibility with business and investment decisions, and honesty with the public, I would expect this to be a steady as she goes Budget.”

Top five things to watch out for in the Budget 
PricewaterhouseCoopers tax partner Barry Murphy explains five key things to watch out for in Budget 2011.

Air passenger duty and fuel duty
"Will he freeze air passenger duty and potentially freeze, or not implement, the next round of raises in fuel duty? It could be affordable out of the £8bn 'windfall' he has because tax receipts and spending cuts have come through a little stronger than expected. But he wouldn't want to give it all away."

Income tax
"People should look out for an increase in personal allowance level - the amount of income you can receive each year without having to pay tax on it. This is probably going up by £1,000 or he might accelerate that increase to counteract the impact of the recession and inflation on consumers."

Tax simplification - national insurance and income tax
"We have to mention tax simplification somewhere. It's worth watching out for signals on any desire to harmonise income tax and national insurance. It would be very complex and take a lot of consultation, but maybe he'll launch this type of consultation in the Budget."

Entrepreneur's relief

"There are calls for conditions for entrepreneur's relief to be relaxed a bit so more of the people who run a company can benefit. But is this affordable? It would be a measure to keep an eye on."

Corporate tax
"There ought to be no surprises but delivery of what has been promised already in terms of a more competitive corporate tax system - and allied to that, I would expect to hear more on launching the next round of consultation on launching a patent box. We could also see enterprise zones introduced."

Small businesses

Channel 4 News spoke to Laurence Campion, who runs a handmade soaps business – Simply Soaps – in Norwich.

He said: “The only thing that really has a bearing on us is the red tape – if there is any more of that small businesses will struggle because they do not have the manpower. I would definitely back simplifying tax if it turns out to be true,” he said.

One of the so-called “sin taxes”, alcohol often gets hit in the Budget. Predictably, publican Jack Limond, who runs the White Horse Inn in Shropshire, told Channel 4 News he is worried about this.

Why is everyone so miserable? With good reason...
The concept of the "Misery Index" is a simple economic concept that adds the ills of inflation and unemployment together into a single measure of our financial despondency, writes Channel 4 News Economics Editor Faisal Islam.

Today’s figures mean that in February 2011 it hit the highest level since Oct '92 just after Britain was forced out of the ERM (and the then Chancellor was advised by a young Tory hotshot called David Cameron).

The big picture here for me is that the numbers alone show that the recovery is far worse than being choppy: it is positively painful...Not all of it can be pinned on the Chancellor of course...But as the Chancellor stands up to deliver his first full Budget speech, it should not be forgotten that the economy is still officially shrinking, inflation is at near two decade highs, unemployment is rising, and the Misery Index is back.

Read more on the 'misery index' in Faisal Islam's blog

“Over the last 40 years we’ve seen the high street hit, bakers, grocers, butchers – now with the price of alcohol and the smoking ban it seems that it is the pubs.”

He is also hoping for a change to national insurance contributions for employers.

“I hate the employers’ national insurance contribution. It really does annoy me. It’s a tax for giving people proper jobs,” he said. “But I think there’s absolutely no chance of it.”

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It’s not just business which is hoping for help from the Budget.

Fiona Whyte is a 24-year old philosophy graduate from Leeds University. She has been looking for work in the third sector and international development for more than four months. She’s volunteering until she finds a paid job.

Fiona told Channel 4 News the Government needs to help graduates find work.

“The support is there for people looking for work but maybe the support isn’t there so much for graduates who are struggling to find work because that hasn’t been the case for so long. I’ve been doing as much as I can: volunteering, doing lots of outreach things on the internet so I considered myself quite a good candidate for the jobs I’ve been applying for but there just aren’t that many out there…it’s quite hard.”

Times are also hard for the voluntary sector, which hopes the Budget provides a Big Society boost.

TimeBank is a charity which helps and supports people to volunteer. The organisation has just lost Government funding worth £500,000, which equals 25 per cent of its budget.

Chief Executive Helen Walker told Channel 4 News: “It’s a huge disappointment because we believe we’ve been doing the Big Society for the last 10 years.”

Speaking ahead of the Budget, she said: “We’ll look to see just how much the Government is putting into the Big Society initiative to actually make it happen. At the moment there’s a lot of talk about what they would like to happen but our experience as a volunteering charity is that people need help and support into volunteering.”