Commentary: A quiet Budget could still leave households feeling the squeeze

"From what we know so far, Wednesday’s Budget is shaping up to be something of a conservative affair, with no major changes to tax policy on the horizon. From purely a political perspective, this would make a lot of sense: Labour are enjoying a decent lead in the opinion polls from the ‘Burnham bounce’, there has been some positive economic news of late in reduced unemployment and upwardly revised growth updates, but things still remain tight in terms of inflationary pressures and the lack of a fiscal headroom buffer, estimated as possibly half of the £24bn stated in March’s Spring Statement due to gilt yields. Also, 2027’s Spending Review is likely going to be the catalyst for more radical changes.

"However, while this Budget may be shaping up to be a political non-event, as a lot of Budgets are, it doesn’t mean that the decisions, or non-decisions, don’t have a big effect on households. The ongoing freezing of income tax thresholds, which is very unlikely to change on Wednesday, means that as people’s wages go up a nominal amount due to inflation, more of their income is taxed at higher rates. While this still equates to a higher take-home pay figure, because inflation also affects costs, in a lot of cases much more so than wages, this means that households can find themselves fighting a bigger battle against the cost of living. But the Government is currently relying on the increased tax revenue from these freezes.

"As for possible policy changes in the Budget, Chancellor John Healey has already indicated that there will be no increase in the rates of Capital Gains Tax (CGT) and it’s looking unlikely that we will see any changes to levels of income tax, national insurance or VAT. Instead, there may be some relatively minor measures. Expect to see some form of cuts to business rates for hospitality venues, a cause long championed by Burnham. Wealthier households should prepare themselves for some tweaks to laws around inheritance tax, the aforementioned CGT and the so-called ‘mansion tax’. But overall, it’s looking unlikely that there will be any ‘rabbits out of the hat’ for average households.

"One suspects that the Government will be hoping that, like the Spring Statement in March of this year, this Budget may be forgotten by most people very soon after it arrives. But if households find their income increasingly squeezed, they might not have the opportunity to forget."