The Budget: what you need to know before George Osborne stands up

A crackdown on corporate tax dodgers, announcements on the Northern Powerhouse, and perhaps some tinkering with pensions. John Stepek takes a look at what George Osborne might unveil in his 2016 Budget.


George Osborne: no way his sums will be correct, whatever his figures

Previously, on the George Osborne show

"George's plans lie in ruins.

"His scheme to mount a massive, attention-grabbing pensions shake-up has been scuppered by frightened colleagues, who threw a wobbly at the idea that their constituents would end up being targeted for another tax grab.

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"His efforts to claim victory over the mighty Google backfired after both France and even Italy managed to squeeze a lot more in back taxes out of the multinational.

"And now the scribes at the Office for Budgetary Responsibility have told him his sums are wrong on the deficit.

"Now George must summon all his cunning and sleight of hand to prove that he alone is the true heir to Dave."

I agree, it's no Game of Thrones.

It's Budget 2016

Political manoeuvres in the dark

First things first: the economy is a bit weaker, tax revenues are a bit lower, and borrowing is a bit higher than Osborne had hoped for. All of that adds up to him being unable to say that he'll achieve his goal of running a surplus (ie, having more tax coming in than the government actually spends in a year) by the 2019/20 tax year.

Quelle horreur!

Just to be clear, this is entirely political.

You may be a dyed-in-the-wool, "print money and bury it in the ground and have every man of working age dig it up again then rebury it there's no such thing as too much stimulus" neo-Keynesian.

Or you may be a hardcore, "all government spending is bad where are my bond vigilantes?" deficit hawk.

It doesn't matter. The piddling difference in whether Osborne's sums add up between now and 2020 is utterly irrelevant economically. Because there is no way that they will be correct anyway.

The world would be much improved if all forecasters were barred from narrowing their forecasts down to more than, say, two significant figures, and had to precede every future number with the word "roughly".

The false impression of accuracy we get from these things makes us take them seriously, and that's not at all helpful.

Hopefully, Georgie boy will stand up and just say: "Look, I got the sums wrong. That's the way it goes. In the long run it doesn't make much difference, and if you can show me a chancellor whose sums have ever added up then I'll give you a gold star." Maybe he will.

But it's more likely that he'll feel the need to save face. At the very least, that means more talk of cuts, and various bits of political sleight-of-hand to make it look as though he's managed to meet his targets.

No wonder we're all so cynical.

Northern Powerhouses and tax-avoidance crackdowns

Anyway, what else should we look out for? There'll be the usual range of Northern Powerhouse-related announcements. I like the idea of the Northern Powerhouse. At the same time, I don't really believe that the government can stretch out its hand to a region and say: "Let there be growth".

(Although regional parliaments might work. Judging by the experience of Edinburgh and Cardiff, sticking a big group of massively overpaid civil servants with a casual disregard for the amount of taxpayers' money they blow on expenses into one city seems to do wonders for local house prices, at least.)

Tax avoiders will get a real kicking. As Chris Giles notes in the Financial Times, Osborne is going to feel embarrassed by his over-exuberant gratitude towards Google for tossing an extra £130m into the UK's coffers.

So expect more moves to crack down on multinationals, loopholes and all the rest of it, as my colleague Merryn has been warning of for quite some time.

This is another reason to be wary of big multinationals trading at high earnings multiples they're going to come under ever more scrutiny, and right now we live in a world where governments are in the ascendant, which means the era of tax competition is over.

The new thinking in boardrooms has to be moving away from: "what can we get away with?" to "which regimes are most reasonable and what sort of deals can we do with them?"

I suspect that means a higher effective tax rate for your average global company.

What else to watch out for

There'll be a ragbag of other announcements, mostly aimed at making Osborne look "nicer" to offset his reputation as the evil hatchet man. So you've got "Help to Save" a scheme to encourage people on in-work benefits to save more. And we might get a rise in the higher-income tax threshold.

Pensions it seems aren't going to be fiddled with in this Budget. But Osborne is pretty good at springing surprises, so even now I wouldn't entirely put it past him to just go ahead with some big change anyway.

But it's more likely that salary sacrifice schemes will be looked at. So from a personal finance point of view, keep an eye out for that.

As usual, the full details of exactly what the chancellor has done won't become apparent for at least a couple of days after he's sat down.

So we'll have full coverage of the Budget on the website as it comes out, but in next week's issue of MoneyWeek magazine, we'll take a more in-depth post-Budget look at the current state of play on pensions, tax efficiency and the practicalities of long-term investing.

If you're not already a subscriber, it'll be a particularly useful one for those new to investing or anyone who wants to get themselves organised,sign up 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.