What nasty surprises will George Osborne spring this Wednesday?

With borrowing higher than expected, George Osborne has some tricky choices to make in Wednesday's Autumn Statement, says John Stepek. Here, he looks at what might be in his sights.


George Osborne is likely to target the pensions tax regime in his Autumn Statement

I'm starting to think of George Osborne as the anti-Gordon Brown.

That sounds like a good thing. But other than the fact that any chancellor who isn't Gordon Brown has to be an improvement on Gordon Brown, it's not really.

Gordon Brown advanced the client state by stealth. He spent all of his time indulging in sleight of hand, misdirection, and creating complexities and loopholes, all in the name of creating the micro-managed hamster-cage economy of his dreams.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

George Osborne is trying to do the opposite. He wants to scale back the size of the state but again, he wants to do it by stealth. That means he's fond of the same dishonest misdirectional garbage that made Brown so irritating.

I've welcomed many of the changes he's made it took guts to free up the pensions system. But he's way too fond of tinkering.

And this week he gets another chance to unleash yet more surprises from his Budget bag of tricks.

So what can we expect?

The chancellor's purse strings are tighter than he'd hoped

Friday brought the sort of news that the chancellor just didn't want to hear before he has to stand up and deliver Wednesday's Autumn Statement.

A big part of the chancellor's pitch is that Britain has to pay off its debts. If things go according to his plan, we should be able to start doing that by 2019/20 (that's the year that we start taking in more tax than we spend).

Trouble is, we're already off course. Public sector net borrowing in October came in at £8.2bn. That's the worst October figure seen since 2009. And it was significantly higher than expectations for £6bn.

Total borrowing for the fiscal year so far is £54.3bn, compared to £60.9bn at this point last year so things are improving. But the problem is it was meant to be moving much faster than this. If we continue at this rate, borrowing will come in at just over £80bn in 2015/16. That's nearly £11bn more than the Office for Budget Responsibility (OBR) predicted just four months ago.

Let's be honest here a few billion here and there on these forecasts is nigh on irrelevant, mainly because they're all probably wrong anyway. Intention and direction of travel matter more.

But this is politics. No one wants to stand up in front of the class and say that their plans aren't quite going as they had promised.

So that leaves Osborne with some even trickier than expected choices come Wednesday.

Could Osborne decide to come for your pension?

Osborne is of course under pressure on plenty of other fronts, too. His tax credit cuts have been kicked out of the Lords and are widely opposed by his own party. So he's going to have to do something about that.

And it won't help that we've got David Cameron promising to stick an extra £12bn on the defence budget (over the next ten years, right enough), "with a focus on tackling IS, including a 30% increase in the counter-terrorism budget, £2bn on special forces and a new emphasis on cyber defences," reports the FT this morning.

So what's he likely to do? Well, he can certainly fudge the overall figures. He was hoping for a surplus of £10bn in 2019/20, but he could always use the added "unexpected" defence spending as political cover to get out of this.

But that won't do the job by itself. So what else could he do?

As Tower Watson point out, "it's hard to see many softer targets" than the pensions tax regime. Most of the tax relief goes to higher earners, so it can be seen as a "we're all in this together" move. And it has the potential to be a big revenue booster for the government. (It costs' the exchequer around £50bn a year).

Of course, there are good reasons why pensions tax relief goes to the higher earners it's because they're the ones who pay the most tax, and who are in a position to save the most money. But nuances like that are too complicated for politics.

That said, Tower Watson notes that we might not see anything happen this time round. "The chancellor has said that the government will respond to the consultation fully in the Budget' so, not until spring 2016."

However, if you haven't used up your existing tax breaks on pensions already this year, we'd take a close look at it ASAP. My colleague Merryn looked at just how much you can save in the latest issue of MoneyWeek magazine.

And just before I go, while I'm on the topic - we're currently working on a project looking at the best ways to generate an income and enjoy a high standard of living once you stop taking home a salary every month. If you want to hear more about it, then get your name down on our hotlist' right here.

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.