George Osborne is in danger of being caught in an ambush of his own making when he presents his budget next week.

He needs to keep voters sweet ahead of the EU referendum but recently announced that the optimistic note he struck at the time of the autumn statement has now gone flat. There was always a danger that mid term unpopularity might lead people to vote against the government for reasons unrelated to Europe. At the moment the Conservatives hold a healthy lead over Labour, but an unpopular budget with new cuts and tax rises could change that before June.

The Chancellor was too bullish in the autumn and now that the economic headwinds are beginning to blow, he is thrashing around for answers to keep his pledge of a budget surplus by 2020 intact. The suggestion of a major reform of pensions was a spectacular example of this. The idea was floated to remove tax relief on pension contributions rather than taxing withdrawals later in life. This would have been a complete reversal of the current position but would have given Mr Osborne more tax revenue now. The plan met severe criticism, not least because a future Chancellor might be tempted to tax withdrawals as well.

That pledge of a budget balance by 2020 is crucial if George Osborne is going to make a bid for the premiership, but it certainly restricts his room for manoeuvre as uncertainty persists on the international front. With growth forecasts cut and average earnings rising more slowly, tax revenues are not what he expected as recently as November.

Reaching for more cuts in public services is going to prove very difficult. The well reported difficulties faced by councils like Lancashire clearly show there is no low hanging fruit on the public spending tree. Indeed the Chancellor will need a long neck to munch much more. So let’s nickname any more economies in this area, the giraffe cuts!

It is always difficult to predict what Chancellors will do, but I would be surprised if petrol duty remains frozen as it has been since 2011. With the drop in forecourt prices to around a pound a litre, this would be a relatively pain free area to raise tax. He ought to do something about taxing the amount of sugar we consume but there seems to be a reluctance to do so.

With virtually zero interest rates the climate remains favourable for investment and consumer growth remains strong. However the latter familiar development in the UK economy may be storing up trouble in the future. If only the manufacturing figures were as healthy.

Osborne will be entitled to say that his campaign to make multinationals pay their UK taxes is beginning to work. This is an essential development as people grow weary of the austerity agenda.

Wednesday’s budget will be both a temporary distraction from debate on the EU referendum, whilst also potentially affecting its outcome. Osborne has been in post nearly six years now. He will need all his political skills to get through this Budget.


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