As a frame of reference, here are my broad brush predictions for the Budget later today. Some things I am pretty sure about, some I am certain about because they’ve been briefed and others are guesses, hopefully educated guesses.
- Fiscal mandate. George Osborne will commit the new government to eliminate the current structural deficit by the end of the Parliament (2014-15). He will also commit to the burden of public sector debt falling year-on-year by the same point.
- Growth. The Office for Budget Responsibility will cut the growth forecasts it released last week for 2011 and 2012 but raise them later in the Parliament, leaving the level of output in 2014-15 very close to that in last week’s announcement. The assumed medium-term Keynesian multiplier will be zero or negative.
- Public finances. Britain’s deficit will be scheduled to fall below 3 per cent of GDP in 2014-15 and will be close in 2013-14.
- Fiscal consolidation. There are many ways of working out the total consolidation, but the Treasury’s method will be to estimate tax increases since Budget 2008 and on the spending side compare planned spending against a hypothetical baseline of flat real departmental spending. This will give a total consolidation by 2014-15 of around £100bn
- Spending tax mix in the consolidation. This will be very close to the 80:20 ratio pledged by the Conservatives in the election
- VAT. Consumers will be spared. This is a punt, based on the fact they don’t need to raise any more tax so long as spending is cut radically.
- Spending cuts. The implied cut in departmental spending will be around 15 per cent in real terms over four years – higher if allowance is made for protection of health and overseas aid.
- Welfare cuts. These will exist and include cuts in child benefit for richer households (the obvious thing to do is abolish child benefit and compensate the poor by adjusting means-tested benefits), and cuts in tax credits for middle income families.
- Public service pensions. The axe will hang over these with everyone knowing that the cheaper they get the more money there will be left in the Autumn spending review for departmental spending.
- Income tax thresholds. Will go up by £1,000.
- Council tax. Will be frozen in low spending local authorities.
- Bank levy. Will be based on bank balance sheets and raise quite a bit – about £3bn a year.
- Capital gains tax. Will rise close to marginal income tax rates but there will be big exemptions for things that meet definitions of entrepreneurial activity.
- Small growth initiatives. George Osborne will not be able to resist initiatives and will introduce lots of small measures designed to show he cares about the regions.
Making predictions is obviously dangerous and these will be wrong both with errors of commission and omission. I hope these errors will not be too big.
