UK - Budget preview

UK budget comes on 18 March, less than two months before the 7 May General Election.

UK Chancellor will likely stress the progress made in cutting the deficit and find room for a few crowd-pleasers.

Societe Generale notes in a report on Wednesday:

• Slightly smaller deficits and minor relaxation in austerity:
  
  The PSNBex deficit for 2014-15 fiscal year just ending should be revised down by £2.3bn to £89bn. The following years should be lowered by about £3bn pa unless the Chancellor chooses to use some of the improvement to finance his giveaways. It will be appealing for Mr Osborne to say that the pace of spending cuts can be eased slightly because of the better than expected economic performance.

• Small increase in personal tax allowance:
  
  The current plan is to raise it from £10,000 to £10,600. He may take it closer to £11,000 with the promise of more if the economy continues to perform well.

• Tax cuts for North Sea producers:
  
  The collapse in the oil price has already led to cuts in jobs and investment in that sector. Mr Osborne will try to stem that with fresh tax reliefs. He is unlikely to be successful.

• Diverted Profits Tax to be introduced:
  
  This will be designed to tax the profits of internet companies in particular who generate considerable revenues in the UK but manage to pay virtually no UK tax on those revenues.

• Gilt issuance to rise to £152.5bn in 2015-16:
  
  The cash budget deficit should fall compared to 2014-15 but this will be offset by higher gilt redemptions and a lower financing contribution from National Savings. However, the biggest single factor boosting issuance will be the absence of another very large downward short term financing adjustment.