Budget checklist

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The main issues for George Osborne ahead of the chancellor’s third Budget announcement on Wednesday

The economy and the public finances:

ECONOMY: What is expected: The Office for Budget Responsibility will cut its growth forecasts again. After stagnation in 2012 it will come close to halving its previous 2013 forecast of 1.2 per cent, reflecting the lack of momentum in the recovery. FT verdict: Both the OBR and Treasury are distraught that a self-sustaining recovery remains elusive. They will blame weak exports last year and the eurozone for Britain’s woes, but the OBR’s forecasting reputation is on the line

THE MEDIUM TERM: What is expected: Yet again, the OBR will revise down its forecast for the medium-term level of output as the full hangover from the crisis becomes clearer. FT verdict: It is this assessment that the recent shortfall in growth will not be made up that will do lasting further damage to the forecasts for the public finances and the success of deficit reduction

FISCAL MANDATE: What is expected: The OBR will declare the government to be off course in its plan to achieve a falling burden of public sector debt by 2016-17. FT verdict: Mr Osborne needs three more years of austerity to meet his 2010 ambitions. Deficit reduction is wildly off course and there is no money to spare

TAX REVENUES: What is expected: Tax revenues have been disappointing in 2012-13 and will fall short of the November 2012 expectation which alongside the disappointing 4G auction put public finances under pressure this year. FT verdict: Nominal gross domestic product rose only 1.3 per cent to the fourth quarter of 2012 and when cash spending, wages and profits are rising slowly, so do tax revenues

PUBLIC EXPENDITURE: What is expected: Government departments are spending less than their budgets in 2012-13 and the Treasury has let it slip that it will be cutting another 1 per cent from unprotected departments from April onwards in the Budget. Some of the underspends will be allocated to capital spending projects. FT verdict: In contrast with revenues, the Treasury has found it easier to clamp down on public spending than it expected. The additional cuts will help prevent too much slippage on the public finances as tax revenues fall seriously short

PUBLIC BORROWING AND DEBT: What is expected: After accounting for Treasury sleight of hand in the definitions of borrowing, its coup last November was to say borrowing is set to fall in 2012-13 despite the stagnant economy. Even with further revenue shortfalls, the government is desperate to bring spending in so low as to achieve the same again. FT verdict: Mr Osborne will claim Plan A is on track although it is taking three years longer to achieve than hoped. Instead of eliminating underlying public borrowing by 2014-15, the middle of the next Parliament in 2017-18 is the best the chancellor can hope to achieve

INCONSISTENCIES: What is expected: The borrowing figures in 2012-13, 2013-14 and subsequent years will be flattered by the transfer of the Royal Mail pension fund on to the government’s books and the Treasury’s raid on coupon payments paid to the Bank of England under the quantitative easing scheme. FT verdict: Now the Office for National Statistics has given its approval to the accounting treatment of these raids, which do not improve the public finances but do improve the official figures, consistent measures of public borrowing and debt will be difficult to unpick

GILT SALES: What is expected: The central government net cash requirement – the amount it needs to raise to fund itself – rose a little over the November forecast of £105bn, but would have been much higher without the raid on QE receipts. FT verdict: Without further QE, 2013-14 will be the year when the government has to test whether investors really have an appetite to load up on gilts. Fear that the answer is no explains the QE raid

Budget judgment:

OSBORNE’S STRATEGY: What is expected: The chancellor will confirm the Budget is broadly fiscally neutral with tax and spending measures offsetting each other up to 2015-16. This is his Plan A. FT verdict: The strategy of fiscal conservatism, married to monetary activism and supply-side reforms, continues

MONETARY ACTIVISM: Mr Osborne will consider a revised mandate for the Bank of England, making it clearer that it should worry less about short-term inflation overshoots. He is also likely to move the “flexible” inflation target to the new CPIH inflation measure including owner-occupied housing costs. FT verdict: Mr Osborne hopes the arrival of Mark Carney as BoE governor in July will breathe life into the central bank. The chancellor is likely to announce a short consultation on the remit, although the Treasury thinks the tools the BoE uses are more important than the target

Tax changes:

CAUTION: What is expected: After 2012’s “omnishambles” over granny taxes, pasty taxes and caravan taxes, the chancellor will favour pocketbook tax measures aimed at hardworking families. FT verdict: This will not be a Budget for tax simplification, but one in which people who fit the middle England stereotype gain some small tax breaks. Nothing will be large as there is little money to spare

PERSONAL ALLOWANCE: What is expected: After inflation, the allowance is set to rise to £9,750 in 2014-15, so only a small further increase is needed to reach the coalition £10,000 target. FT verdict: Adding £250 to the personal allowance costs about £1.3bn in the first year, so the goal is achievable in the context of roughly £600bn of government revenues

CORPORATION TAX: What is expected: Mr Osborne would love to cut the corporate tax rate again to 20 per cent. It is scheduled to be 21 per cent in 2014-15. FT verdict: The cost of lower corporation tax is £900m a year and again is achievable if the government can limit spending further than planned

TAX AVOIDANCE: What is expected: After David Cameron called on multinationals to wake up and smell the coffee – a reference to allegations that Starbucks was a serial tax avoider – the Treasury will seek to tighten loopholes. FT verdict: The OBR will have to advise how much money avoidance measures will raise and these are guesses. The government’s problem with multinationals is that international agreement is needed to change the rules

SINGLE-TIER PENSION: What is expected: The Work and Pensions Department has announced a single-tier pension of a minimum of £144 a week will be introduced in April 2016 alongside big national insurance increases from the ending of contracted out rebates on NI. FT verdict: The move is presented as a “huge boost” for pensioners but there will be many more losers than winners and a £6bn-a-year windfall for the exchequer from 2016-17, which will be used to tighten the squeeze on the public sector and fund other initiatives

SOCIAL CARE: What is expected: Mr Osborne will announce that the proposed cap on social care costs for the elderly will come in at £72,000 from 2016-17. FT verdict: This will be funded by savings from the new single-tier pension

CHILDCARE VOUCHERS: What is expected: The chancellor will also announce an expansion of childcare vouchers, giving working families a discount of 20 per cent on childcare bills up to a limit of £1,200 from 2015. FT verdict: The expansion of tax relief on childcare vouchers, currently only for employer provided vouchers, will not make a huge difference to childcare costs

EXCISE DUTIES: What is expected: Mr Osborne would love to protect motorists from the planned 2p a litre rise in fuel duty this September. He could pay £500m to defer the rise by increasing alcohol duties substantially. FT verdict: Now that the prime minister has cooled on a minimum price for alcohol. The alternative of higher duty rates achieves the same price rise but with the exchequer gaining rather than retailers

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