Tim Farron, the Lib Dem president, told me yesterday:
I suspect that we are going to see a Budget which has got more Liberal Democrat stuff in it than Tory. The amount of money being returned to individuals will go overwhelmingly to middle and lower income earners.
He’s right, to the extent that by far the biggest spending measure announced by George Osborne tomorrow will be the increase in the personal tax allowance to around £9,000 – a move likely to cost around £3.3bn.
Senior Tories have been angry at the amount of pre-Budget briefing the Lib Dems have undertaken – part of a calculated tactic to “do Budget negotiations in public”. But privately, they whisper that tomorrow’s announcement will be much more Tory than the Lib Dems currently realise and could leave Clegg looking foolish and powerless.
So what measures are likely to come up, how much will they cost/raise, and who will get the credit/blame? Here’s a quick outline of possible ideas on the cost side:
- Tax allowance lifted to around £9,000 from April 2013. A big Lib Dem win, despite Tory attempts to try and reclaim the policy as their own. Will cost £3.3bn, unless Osborne limits how much upper tax rate payers can benefit – something he is likely to do – bringing the cost down closer to £2bn.
- 50p cut in top rate of tax to 45p. This will cost a small amount of money, as HMRC is expected to say that the rise to 50p generated less money than originally predicted, and more came from the rise from 40p to 45p than 45p to 50p. The Tories will be praised/blamed for it, but it is a risk for the Lib Dems too: will they look like they have capitulated?
- Lifting the rate at which child benefit is lost from £43,000 to £50,000. Both sides will try and claim the credit for it: it might end up looking like a win for the Tory backbenchers against their leadership. But it will cost somewhere between £400m and £1bn.
And on the revenue side:
- Squeezing tax reliefs on pension contributions. If this happens, it is likely to be done in the form of a reduction in the annual amount of reliefs that can be claimed, from £50,000 to either £40,000 or £30,000. Lowering it to £40,000 would raise about £0.8bn, £30,000 would raise about £1.8bn. Reducing reliefs on wealthy people coming towards retirement is a long-held Lib Dem desire, but they might get punished by middle-aged voters, who are more likely to turn out.
- Crackdown on stamp duty avoidance. Stopping purchasers avoiding stamp duty by buying through offshore contributions has been effectively “claimed” by George Osborne, but it won’t raise much – around £200m, rather than the £1bn first thought.
This leaves a likely revenue gap of between £500m and £2.3bn – what could fill it? A Lib Dem solution might be more on reliefs for the high paid and pensioners. A Tory one might be a reduction in departmental spending. But that choice won’t be what decides whether this is seen as a Lib Dem or a Tory Budget – instead it will be what voters remember more: the rise in the personal allowance or the cut in the 50p rate.