George Osborne election budget: Edmund Shing predicts tax cuts but no giveaway

That man of the people, Chancellor George Osborne, is sure to mimic Mr Robertson in giving us all some jam in the Budget on 18 March. After all, we are merely two months away from a May general election and the Conservative Party is sure to want to play its usual low tax card.

I would also wager that the Blues will attempt to sway the grey vote their way with further presents for pensioners, in the form of the granting of further pension freedoms. After all, it is clear Ukip have had particular success in appealing to the fiftysomething-plus Saga generation, which has traditionally been the core of Tory support over the post-war decades.

Higher personal allowance on the cards

So let's start with the most obvious tax-oriented measures – the raising of the threshold for the paying of income tax in the form of the personal income tax allowance, currently £10,000 per person per tax year. Firstly, this is one measure the Conservatives and Liberal Democrats continue to agree on. Secondly, the strength of the UK economy allows Osborne to relax his fiscal shackles a little and give back to UK households.

I would pitch for an immediate increase in the personal allowance up to perhaps £12,000 per year (saving all taxpayers £200 per year), with a further pledge to continue raising this threshold if the Conservatives are returned to power.

Of course, some of this largesse is likely to be clawed back via indirect taxes such as higher petrol duty, given how oil prices have collapsed over the last six months or so, allowing UK motorists to buy unleaded petrol today 18% cheaper than it was back in July 2014 (Figure 2).

Benefits for savers – via Isas

Secondly, Gorgeous George will want to help savers, given the paltry interest rates now on offer from high street banks and building societies.

The current Individual Savings Account (Isa) limit has already been raised substantially to £15,000 for the current tax year (from £11,520 previously), and is set to rise to £15,240 under existing government commitments. However, it could go further and perhaps round this amount up to a more generous £16,000, allowing savers to shield earned more interest, dividends and capital gains from income and capital gains tax.

Targeting pensioners – via pension bonds

Remember Pension Freedom Day is approaching with the new tax year, on 6 April.This allows those holding private pensions to liberate them once aged 55 or older, effectively offering a far wider set of financial alternatives for current or those fast approaching retirement. However, this is likely to prove very complicated for the man on the Clapham omnibus, given pensions were an impenetrable subject even before the announcement of these welcome changes.

One set of pensioners who are likely to be targeted by the current government are those who have already used their private pensions to buy an annuity (a product that provides a guaranteed level of income for the remainder of one's life). The potential to trade in an existing annuity for a lump sum instead could well be a new measure introduced in this Budget, extending the liberalisation of private pensions.

A second measure benefiting pensioners could be the extension of the popular Pension Bonds offered by the government-run National Savings & Investments. Currently, pensioners are limited to investing a maximum of £10,000 in each of a 1-year 2.8% bond and a 3-year 4% bond. The government could well increase the amount of these bonds on offer to pensioners to allow more to benefit from these market-beating interest rates, or to increase the amount that a pensioner can invest in each bond.

Caveat voter: All budget commitments could be unwound come May

But you would do well to remember any pre-election giveaways from the chancellor can be unwound following the May general election by any eventual winner. So it would pay not to get too excited by and long-term measures announced during the Budget.

Thus far, the one fact that I can safely state is that there is a record level of uncertainty over the result of this upcoming election, with the two main parties polling less than two-thirds of the total UK vote, a post-war low (Figure 3).

Greatest certainty: Another hung parliament

Taking these average poll results and translating them into parliamentary seat swing predictions, no combination of two parties (apart from Conservatives and Labour) looks capable at present of forming a majority coalition government (Figure 4).

Even a putative Labour and SNP coalition would not yield the necessary minimum Parliamentary majority of 326 seats, falling short by eight MPs.

So what can we conclude from all this? Firstly, any tax giveaways will be limited by the coalition nature of the government, with the Liberal Democrats putting the dampers on any excessive Tory tax cuts.

Secondly, tax-free saving and pensioners should get a boost. And thirdly, the chance of an inconclusive May election is at present running very high, with the risk of even needing a second election soon after the first...

There remain two months for the main parties to sway current voting intentions their way but they had better get on with it. In the meantime, make sure to use up your current ISA allowance of £15,000 by 5 April (perhaps buying exposure to the current UK & global stock market rally), or else it will be too late.

Edmund Shing is the author of The Idle Investor (Harriman House), an expert columnist and a global equity fund manager at BCS AM. He holds a PhD in Artificial Intelligence.