George Osborne may set trap for Labour in the Budget

Even before it begins Wednesday’s Budget is unique.

Normally at this point in the electoral cycle the Chancellor would be giving away goodies ahead of an election, always with the option to put off the poll if the policies don’t quite fly. Not this year.

Because we now live in an era of fixed-term parliaments George Osborne knows he has another Budget to deliver next year.

“Forget economics, this Budget is about politics,” according to Lord McFall.

As plain John McFall he was Chair of the Treasury Select Committee for nine years, leading show trials of bankers such as Fred Goodwin in the wake of the financial collapse.

He added: “This will be a slow charged budget but I expect we’ll see spending cuts to put pressure on Ed Balls.”

Labour have committed to a zero-based spending review, meaning should they win in 2015 they won’t diverge from the current government’s overall plans for day to day spending.

The more Osborne squeezes that spending this year the less room there is for Labour to juggle the finances and make promises in the run up to the general election.

Labour’s commitment not to increase spending also leaves them susceptible to booby traps that Osborne may sneak into his statement.

Policies that will only come into effect after the next election designed to derail a Labour Treasury but which he will know how to defuse.

Cathy Jamieson is Labour’s Shadow Economic Secretary in their Treasury team.

She said: “The zero-based spending review is Labour being responsible.

“The growth figures we’re now seeing are welcome but we still think the economy would have recovered quicker if we’d done things differently.

“The growth isn’t translating for ordinary families who are still seeing prices rising faster than wages for food, the cost of commuting to work, for power bills.”

That growth has opened up a new problem for the Chancellor.

Wages are growing again and that means more and more people are moving up into the higher tax threshold making them liable for 40% tax a phenomenon dubbed fiscal creep or fiscal drag.

An alliance of Tory backbenchers has mobilised to lobby the Osborne on the issue. They want the point at which the 40p tax rate kicks in raised from £41,150 to somewhere around £44,000 as a way of helping the squeezed middle.

Critics argue that since anyone earning that amount is among the top 20% of earners in the UK they may not have the right to call themselves the squeezed middle.

The Tories arguing for the change tended to be the ideological but uninfluential until last week when former Chancellors Norman Lamont and Nigel Lawson took up their cause.

Labour Lord McFall also thinks there’s a case to answer.He said: “£41,000 is not a big wage these days so we’re getting a distorted tax system.

“Because it’s an issue that Tory backbenchers are getting more exercised about the Chancellor will have to address it.”

One change in personal allowances almost guaranteed to be in the Budget is a further increase in the starting point for paying any tax at all.

The Lib Dems promised in their 2010 manifesto to raise it to £10,000. That pledge has been fulfilled and the Tories have got a taste for the policy too since it helps everyone earning up to £100,000 by allowing them to keep more of their cash before the taxman takes a slice.

Lib Dem sources heavily hint that the threshold will go above £10,000 at this Budget. It wouldn’t be a surprise if their next manifesto contains an aim to go to £12,000.

The Lib Dem’s man in the Treasury is of course Chief Secretary Danny Alexander. He may hold some sway on the taxes that folk notice most immediately.

He has plenty of whisky distilleries in and around his Inverness constituency. The Scotch Whisky Association has been lobbying hard to get duty frozen or cut and all the indications are that their wish will come true.

For the Coalition that would also serve as a tasty bone to throw Scotland’s way in the ongoing independence debate.

It’s also telling that the new Special Adviser Danny Alexander recently hired has come from the Fair Fuel UK pressure group.

Hopes that Osborne would cut fuel duty in his Autumn statement were scotched but this Budget may prove a more appropriate time to do so.

Hear our writers discussing the Chancellor’s statement and catch up with all the breaking Budget news at sundaypost.com.