Speculation has already started about chancellor George Osborne’s first Budget of the new government. During the election campaign, the Conservative Party said cutting the deficit would be one of its biggest priorities. Analysts believe this will be a big part of the emergency Budget on 8 July.
The deficit reduction plan is expected to be implemented in two phases. The first will see a reduction in government spending by 1 per cent each year in real terms for the first two full financial years. In the second phase, the government hopes to move into a surplus, by generating revenue of more than its spend for the first time in 18 years. The aim in this phase would be to pay down debts and reduce the scale of annual interest payments.
In order to fulfil the promises made in the manifesto, the government will need to look at ways to pay for it. “Top of the probabilities is the restriction of tax relief on contributions for those earning above £150,000,” said Martin Tilley, director of technical services at Dentons Pensions. This is expected to have a minimal impact in terms of numbers affected by the change but analysts have said that it will be a message to the general workforce that the higher paid are not obtaining relief which they could otherwise afford.
“I hope that the proposed loss of the £1 allowance for every £2 of earnings above £150,000 as was set out in the manifesto, is not the chosen method of restricting relief, as the practicalities of administering and advising in advance of the known remuneration for a given tax year would be extremely hard,” Mr. Tilley added.
A number of analysts have pointed out that they would not like to see any more changes in the pension framework for another five years since it has been tough for the population and finance professionals to keep up.
Education, healthcare, infrastructure investments and defence are some of the other areas where the government is expected to spend more.
The new Budget is also expected to bring changes in the housing sector. The manifesto promised to keep mortgage rates lower, building more homes and extend the Help to Buy scheme to 2020. A new Help to Buy Isa is also being introduced this autumn.
spriha.srivastava@ft.com
