The Budget 2014 – our predictions

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When thinking about the Budget on 19 March we should probably try and consider what the Chancellor might be thinking. He has to consider both technical changes to the tax system, such as new reliefs, and basic policy issues such as the rates and allowances applying to the various taxes.

This Chancellor in particular has tended to announce technical tax changes at least a year in advance of their implementation. So most of the measures expected to feature in this year’s Finance Bill were announced in principle in last year’s Budget and there has already been a period of consultation and draft legislation. The 2014 Budget is likely to include a similar range of proposals, which will then be developed over the coming year.

In considering such proposals the Chancellor is subject to various constraints, which pull in different directions. The first is the need to be seen to be doing something. Generally people expect a Chancellor to change things rather maintain the status quo.

Some measures the Chancellor may like to implement will have a cost in terms of tax revenue foregone, which brings them into conflict with one of the Chancellor’s major priorities, which is to reduce the deficit. Even if he decides he can afford to implement one or two such measures, he cannot please everybody.

When the Chancellor turns from technical issues to consider adjustments to rates and allowances he will, once again, be looking at how to balance various constraints within which he has to work.

Reducing the rate of VAT and the basic rate of income tax may win votes, but on the other hand it may lose them if it prejudices the Chancellor’s reputation for prudent management of the economy and is seen as a ‘pre-election giveaway’.

Reducing tax for the rich may have limited political appeal but this Chancellor has reduced the top rate of tax from 50% to 45%. Will he be prepared to tackle further issues affecting better off taxpayers such as the relatively low level, around £41,500, at which higher rate tax may be paid by a family.

Who’d be the Chancellor of the Exchequer? Perhaps he could be forgiven for standing up on Budget day, announcing that he had no changes to make, and sitting down again.

That, however, is perhaps the only thing that we can guarantee he will not do.