George Osborne has “little room for manoeuvre” in his Budget announcement this week as he seeks to position himself as the best steward for the economy ahead of a looming general election.
The chancellor is set to deliver the Budget on Wednesday from Westminster, but economists say the statement will not be peppered with tax giveaways and other incentives, unlike previous Budgets.
Last year, the chancellor raised the income tax threshold to £10,000 a year earlier than planned, and also outlined the Help to Buy Scheme aimed at supporting first-time buyers onto the property ladder.
However, economists expect a low-key affair this year as the chancellor seeks to cement his position as the man who is leading the economy to recovery.
Ian Kernohan, economist at Royal London Asset Management, said any announcement would sound more impressive than it would be in reality.
“George Osborne doesn’t have more room for manoeuvre, but the government is facing an election in just over 12 months’ time,” he said.
“There may be a few headline-grabbing measures – such as something on the tax side, or raising the income tax threshold further – that sound quite big when presented in the media but don’t add up to much.”
Mr Kernohan said that while Mr Osborne has succeeded in reducing the country’s budget deficit, it remains at more than 6 per cent of GDP – roughly £111bn – which he described as “one of the highest in the western world”.
“Growth is improving and the deficit is coming down, but we have had four years of austerity, and the pace [of budget deficit reduction] compared to other countries has been quite modest,” he said.
The economist added that Mr Osborne “[does] not have much to play with”, given his initial plan when elected was to rid the country of the deficit by the end of the Parliament.
“In 2010, the plan was by the end of the Parliament to balance the books, but that has been postponed,” he said.
Stewart Robertson, economist at Aviva Investors, said the chancellor would “not take any risks”.
“It will be a steady-as-she-goes Budget, with no large spending or important tax decisions. I don’t think they will go down the pre-election route now in terms of announcing giveaways,” he said.
Mr Robertson said he thought there may be small tax breaks or modest policy changes, but mostly it will be “implicit promises” around further reducing the budget deficit.
“The budget deficit was 11-12 per cent of GDP and now it is closer to 7 per cent, so we have several more years of [austerity] to come.”
Simon Ward, chief economist at Henderson Global Investors, said the recent data showing the state of public finances was “not really as good as one might have hoped”.
“The chancellor does seem to be constrained in what he can do,” Mr Ward said.
“The public sector borrowing numbers outlined in the forecast by the Office for Budget Responsibility (OBR) in December looked about right.