17th March 2015 by Lee Robertson
It’s almost here. The Chancellor, George Osborne, will deliver his last coalition budget before the general election in May to Parliament this Wednesday 18 March 2015. He has now built something of a reputation for using such occasions to introduce truly major reforms. We have had the ‘pension revolution’ in last year’s budget allowing anyone over 55 to cash in their pension, and sweeping changes to the Stamp Duty Land Tax regime in December’s autumn statement. Therefore it is easy to see why a politically ambitious chancellor may be tempted to continue to offer up radical pre-election, headline grabbing initiatives.
However, he continues to have a difficult balancing act because despite the improved economic backdrop, with the Liberal Democrats demanding fiscal discipline and the Conservatives’ core message that only they can be trusted with the public finances in such straightened times, we are probably likely to see just one or two eye-catching – albeit fiscally neutral – proposals for reform, rather than any really extravagant pre-election giveaways. With Chancellors, it is typically always thus in any case, when one hand dispenses the other tends to grab back.
With Parliament due to be dissolved on 30 March, nothing too controversial is likely to be enacted in the coalition’s dying days so what initiatives might we actually see this time?
The personal allowance is already due to rise from £10,000 to £10,600 in April 2015. We might see a further increase to £11,000, which would presumably have cross-party support, although it has been widely reported that the Lib Dems wish to see it even higher at something like to £12,500 and are unhappy that The Chancellor has sought to take the credit for ‘their’ idea.
Pensions minister Steve Webb has floated the idea of a flat 33 per cent tax rebate on pension contributions, replacing the current system which links the tax relief to the amount of tax paid (arguably favouring the better off). It’s an intriguing idea which has some cross-party support but this may be too controversial this late in a government. Therefore it is more likely to be part of and an election manifesto or for the next government rather than in this budget.
At the same time, reductions in the lifetime limit from £1.25 million towards £1 million and restrictions in the amount of free cash from 25 per cent to a fixed monetary amount have also been mooted. In fact, as I write this the financial trade press are claiming this will be the case.
Every year, there is the pre-election rumour of possible changes to the valuable inheritance tax reliefs for business and agricultural property. Given that Parliament will be dissolved just twelve days after the budget, and that anything in the short pre-election Finance Act needs to be uncontroversial if it is to be legislated, it would be pretty surprising if this made it in this time.
Recent commentary by both George Osborne and David Cameron that ‘family homes should not be caught by inheritance tax’ have led to suggestions the Conservatives may seek to introduce a £0.5 million nil rate band, a move towards their promise made before the last election of a £1 million nil rate band. It would be a surprise to see something as significant as this in a pre-election budget, but the PR and political attractions of putting Labour in a tricky position might appeal. This would be very popular with middle England and floating middle class voters, particularly in the Tory heartlands of the south where property values contribute disproportionately to the values of estates.
I doubt we will see any pre-election tax cuts for higher earners, it seems unlikely that Danny Alexander over at The Treasury would have gone along with his boss on this.