What to expect from the budget

This will be Chancellor George Osborne’s eighth budget, but it could be one of his most ineffectual as he avoids issues ahead of this summer’s Brexit.

George Osbourne
Source: Bloomberg

On Wednesday 16 at 12.30, the Chancellor George Osborne will deliver his eighth budget to the House of Commons. This could end up being one of the least effective budgets ever delivered, as nine weeks later the UK will vote in a referendum to decide if the nation stays in the European Union or leaves.

The chancellor is conscious that anything that he announces in this budget could well end up being scrapped should the country vote to exit the EU. 

The importance of the Brexit referendum on the 23 June this year is arguably greater than whatever measures the Chancellor George Osborne might look to introduce in this budget. With this being the case, the Conservatives will be looking to insure that there are no controversies that might confuse the voter and affect the outcome of the summer vote.

Although the two might not be directly linked, the general public already have a poor understanding of what the country has to gain or lose from this vote and could easily be confused. 

So what should we expect from this budget?


Having spent the last eight months waiting for a review of pensions, it was expected that this would have been the area that saw the biggest changes when the chancellor spoke. That has now changed as the muted changes received a less than warm reception, and this disquiet has forced the chancellors hand.

The Chancellor has decided this is a battle he will leave until another time, but considering the difference this would make to his budget it is an issue he is certain to address at a later date.

Although the full force of change might not come about in this budget, companies such as Standard Life, Aviva, Prudential andLegal & General could all see their share price come under pressure, especially as several of them have just posted improving corporate updates.


The initial tax free band is set to increase from £10,600 up to £11,000 in April. An announcement of what increases to this level and what we can expect in the future may follow.

Speculation is high that the starting point for the higher tax band will be increased from £42,385 up to £43,000; a move designed to appeal to middle earning England. It is also widely expected that income tax, VAT and national insurance will not be changed.

One area of tax that has seen increases pencilled in yet not implemented for the last four years has been on petrol. With the low spot oil prices dominating the world, this is potentially the time for the chancellor to act and a 2p increase per litre has been muted. Conservative backbenchers are strongly against this.

Capital gains tax could be another area targeted, as this is only likely to affect the wealthier members of the country and will enable the Chancellor to advocate that he is taxing the rich.

The last area that might see changes could be income tax. In 2013-14 the reduction of the higher tax bracket, down from 50% to 45%, saw an increase in tax revenue of £8bn. Following this, a further reduction from 45% down to 40% could well be introduced.

The changes to taxation will see the spending power of the retail consumer affected, and any benefits felt by increased tax bands could well be lost by fuel surcharges. Any change to taxation on fuel will see distributors once again debating how much of these increased costs they should pass on to the underlying consumer.

The usual suspects

Cigarettes are set for a further 16p of tax to be added to a packet. But considering how much of the revenue stream of British American Tobacco and Imperial brands comes from overseas, specifically emerging markets, this might not affect the share price too badly.

After three previous 1p reductions on the price of a pint, we might once again see this being discounted, as JD Wetherspoon CEO Tim Martin has recently pointed out a level playing field on taxation, with the food retailers is really what the pub industry needs.

A Budget Surplus

Having set himself a mandate to ensure that we are consistently running a surplus in the budget by 2020, the Chancellor will be conscious that he only has so many budget opportunities to bring this into practice, and at the moment is still looking for 0.5% budget cuts on all government spending. On several occasions he has made clear his wish to tackle the deficit, and in order to bring this about further austerity, measures will be required to rebalance the books.

It is unlikely this will be a budget that pleases many, as the austerity measures will be too weak to make serious inroads into the deficit, while the ongoing government cost cutting will once again paint the picture of an uncaring government.

The real changes are only likely to come about later in the year once the Brexit referendum has come to a conclusion.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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