Westminster Blog

The fog is lifting – and the shape of tomorrow’s Budget is becoming more clear.

My expectation is that this will not be a time for huge giveaways or takeaways given the extraordinary spending review we had last October. (Here is a reminder of the upcoming tax and benefit changes, with 16 alone in April – as illustrated by our Austerity Calendar).

Leaving aside the inevitable surprises, here is what we already know – or expect – in the showpiece event.

UPDATE on Wednesday morning:

i] £250m for housebuilding. The government will replace its old Homebuy Direct (£275m) – which effectively ended last autumn – with a new Firstbuy Direct (£250m) which will help 10,000 first-time-buyers. (The old scheme also helped 10,000 first-time buyers.). The housebuilders are delighted but others may simply see this as filling a vacuum in the shared-equity market.

ii] Rumours on corporation tax. The government is due to cut the rate from 28 per cent to 27 per cent next month (as part of a plan to lower the rate to 24 per cent by the end of Parliament) but could go further – or signal its intention to go faster.

iii] George Osborne will announce a further £600 rise in the tax threshold from April 2012 to £8.045 – on top of the £1,ooo rise taking effect next month. Bear in mind, however, that this threshold should have risen by inflation (4.4 per cent) anyway.

1] George Osborne will signal his medium-term intent to merge National Insurance and income tax. The idea is to convince the British public that they pay too much tax – preparing the way for a more low-tax future.

2] Fuel duty escalator. The chancellor is set to reduce or cancel the 5p a litre rise. But a “fuel duty stabiliser” – being considered by the Treasury – seems unlikely after being criticised by the OBR.

3] Aviation tax:

a] The government has cancelled plans to shift aviation duty from a per passenger to a per plane duty which would have stopped half-empty planes paying less tax.  Officials claimed that the change would have been thwarted by the Chicago Convention from 1944.

b] Air passenger duty will be frozen, according to reports – instead of being raised in line with inflation.

c] Lear Jet levy – passengers in private jets will pay duty for the first time in a small but symbolic hit on the rich.

4] Employment tribunals. Could change rules so that staff at SMEs must work at a company for two years – up from one – to be eligible.There are also plans to charge for visits.

5] More support for apprenticeships, including 100,000 work placements.

6] Single carbon price: would mean no need for levy on public electricity bills to pay for three further carbon capture & storage (CCS) plants.

7] Green Investment Bank: Chancellor expected to promise £3bn of capital which – with further private sector investment – could enable £18bn of money going into green energy projects. But greens are disappointed that it won’t be able to borrow until March 2015; almost in the next parliament.

8] Enterprise zones. George Osborne has promised 10 new zones with relaxed planning laws and business rates exemptions. The question is whether there will be 20 rather than 10 and where they will be. Here is a bit of the history of the 1980s zones.

9] Banks: The chancellor is likely to cite the extra £1bn agreed in Project Merlin which will be provided to SMEs as equity funding. He will also boast about the £800m rise in the bank levy, announced a couple of weeks ago.

10] Business Angels. Ministers are looking at ways to extend the tax relief given to wealthy people who put money into small companies through the Enterprise Investment Scheme. Expect changes to the EIS to enable larger investments to bigger SMEs.

11] Planning.

a] There will be a pilot project announced for councils to oversee a system of “land auctions” whereby they would effectively sell planning permission to developers – freeing up more land and driving down the price.

b] Osborne is likely to mention the “New Homes Bonus” whereby councils get extra money for overseeing homebuilding. (Which will only partially compensate for deep cuts to their overall budgets, obviously). He will also claim that the new planning system will encourage developers, although they do not entirely agree.

c] It will be easier to change a building from commercial to residential or vice-versa, as we reported on Saturday. And expect a mention of the localisation of business rates, although this is still proving complicated.

12] Pot holes. £100m for councils to repair pot holes, at the instigation of Danny Alexander. Not sure this alone will – as Times’ headline suggests – “restore nation’s optimism“.

13] Alcohol. Expectations for an extra rise in duty on beers over 7.5 per cent volume.

14] Tax cuts for Green Deal. Decc has been pushing for council tax cuts or stamp duty exemptions for people who take up the Green Deal, whereby people get their homes insulated and repay the money through their future (lower) fuel bills. Financial constraints may thwart this, however.

15] Tax avoidance. Expect a crackdown on non-doms and on retailers who import products via the Channel Islands.

16] Staff rights.

a] Rights for workers to be eroded where council services are outsourced. Ministers have already scrapped the “two-tier code” which protected terms and conditions when (central government) services are transferred to a new employer. This will now be applied to councils, according to Eric Pickles.

b] Ed Balls’ prediction of a crackdown on SME maternity pay is not expected, according to Whitehall sources. However, Vince Cable has signalled these changes for SMEs in last week’s FT interview:

Mr Cable will announce he is not extending workers’ rights to request training time outside work at companies employing fewer than 250 people. He will also repeal regulations that give parents of 17-year-olds the right to request flexible working arrangements, while reassuring start-ups with fewer than 10 employees that they will be exempt from new domestic regulation for three years.

17] The macro situation. Our economics editor Chris Giles wrote this morning that the government will have to borrow “significantly more” over the medium term because of the current inflation situation. Read here for a full explanation. This morning new figures have shown a rise in CPI inflation to 4.4 per cent and a higher-than-expected public sector net borrowing of £11.8bn, higher than the £8bn forecast by the City.

And (as the Spectator blog points out) economists expect this year’s GDP growth to be downgraded from 2.1 per cent to 1.8 per cent.

18] Science. £100m of extra capital funding for Britain’s science industry; likely to finance one of two big science projects; the space innovation centre or the Brabaham life sciences research park in Cambridge. For the full story you need to scroll down this page.