In ancient Rome, emperors and consuls used to dole out Egyptian bread to placate unruly plebeians. The modern British equivalent is the chancellor’s annual Budget, especially when delivered immediately before a too-tight-to-call general election.
George Osborne has spent the last week trying to downplay expectations, singing loudly as ever from the austerity playbook. ‘Everything we do in this Budget has to be paid for’, he said. There would be ‘no giveaways, no gimmicks’.
But Osborne’s made the same noises for the last five years, and he always gives the voters something. Besides, the combination of a tax-boosting economic recovery and low inflation reducing the cost of public borrowing – by up to £6bn a year, according to the forecasters at EY’s ITEM Club – means there is likely to be some cash spare.
Osborne will want to woo the Tory faithful and potential UKIP defectors, as far as his Lib Dem allies will allow, and several potential policies have already reverberated down the grapevine or dripped out from unattributed leaks. Bearing in mind that nothing's certain until tomorrow, how would these affect business?
The oil industry
Osborne is widely expected to help Britain’s ailing oil industry. The oil price has halved to $55 a barrel since the summer as OPEC and US frackers play a multi-billion dollar game of chicken. Unsurprisingly, big oil firms have felt the pinch. Shell recently announced it’s cutting £9.9bn in investment, while BP suffered a 10% full year profit drop to a measly £8bn.
Britain’s North Sea oil industry has been hit especially hard, as lower margins make the cost of exploration and new rigs prohibitive. Osborne has lots of room to manoeuvre here, if he’s minded to help out. He plonked a burdensome ‘supplementary charge’ on oil firms in 2011 when crude was dear, effectively meaning they pay a whopping 32% in corporation tax. In the last Autumn Statement, Osborne reduced this to 30% - a hint of more to come?
While the Tories’ power base is definitely in the south-east, there are signs that Osborne wants to show the north some love. ‘This Budget is all about securing a truly national recovery from building a northern powerhouse, connecting up other regions of our country, committing to long-term plans that support science and high-speed transport’, he said on the BBC’s Andrew Marr Show.
In particular, the north-east’s chemical industry is expected to benefit from some form of help. Construction businesses nationwide might gain from a possible commitment to build 45,000 houses in brownfield sites, while those with more of a northern focus might pick up some decent trade on that road investment. There is also talk of two more enterprise zones, where firms are offered tax relief incentives to invest – one in Portsmouth and another in Blackpool.
Brick and mortar businesses
High street retailers haven’t been doing too well recently (well, the last fifteen years or so), as online sellers outcompete them on price. They aren’t helped by Britain’s high business rates, the ‘council tax’ for firms, calculated using the would-be rental value of their property.
‘The time has come for a radical review of this important tax,’ said Chief Secretary to the Treasury Danny Alexander, in a pre-Budget hint. Exactly how much of a reduction is of course unknown, but small and new businesses in particular are likely to benefit. Cash-strapped local councils, not so much.
Last year, the chancellor introduced plans that will allow pensioners to access some or all of their pension pot as a lump sum, rather than buying annuities. These rules come into force next month, but exclude the millions of pensioners who’ve already bought an annuity, which gives them an annual stipend for the rest of their life.
Osborne has said he wants further reform, to allow pensioners who’ve already bought annuities to sell them, calling the current system ‘patronising’ for people who’ve saved all their lives (and who might now be extra tempted to vote Conservative in May). Beyond that, there’s also talk of reducing the tax rate on such a sale from 70% to the individual’s marginal rate.
Leading insurance firms had billions wiped of their market capitalisation when the first stage of this reform was announced last year, and for good reason.Though some people slip this mortal coil at a ripe old age, having received more from their annuity than they would have done if they'd just put it into stocks, property or a bank account, most do not. With insurance, like casinos, the house always wins, at least in the aggregate.
Everybody’s favourite American multinationals – Google, Amazon, Starbucks and the rest – have become everybody’s favourite whipping boys when it comes to tax avoidance, at least before HSBC and PwC got in the hot seat.
Keen to show the public that Labour’s Margaret Hodge isn’t the only one who can be outraged by canny tax planning, Osborne announced a ‘Google tax’ last year, to recoup UK tax revenues considered to have been lost by elaborate tax arrangements. He’s shown no sign of backing down, so expect further details to be revealed tomorrow.
Particularly interesting will be how the matter will be handled diplomatically. The UK doesn’t exist in isolation, after all - hence the continuing existence of tax havens.
Osborne might lead tomorrow with an increase in the tax free personal allowance to £11,000, effectively putting a few extra quid in everyone’s pockets (so much more civilised than Egyptian bread). Or, he may have some headline-grabbing announcement that he’s successfully kept secret. Everyone likes a surprise, after all. Whatever it is, it’s likely to be welcomed by business, which hasn’t exactly given Ed Miliband its nod of approval.