At the time of last December’s autumn statement, received wisdom in Westminster was that it marked the last major economic policy milestone before May’s general election.
There is no financial room for pre-election giveaways, the logic went; and, anyway, by the time the chancellor stands up at the dispatch box on 18 March, it would be far too late for any to make themselves felt in voters’ pockets.
Then the autumn statement lived up to its billing with a complete rewrite of the much-reviled stamp duty regime for house purchases – a heavy burden for first-time buyers.
But George Osborne is a deeply political chancellor, who harbours aspirations to greater things, so it was always unlikely that he would let what might be his final budget pass without a flourish.
And as the big day approaches, it seems the judgment that he had no cash to spare for pre-election lollipops may well have been premature.
The public finances have been surprisingly well-behaved over recent months, as the upturn in the labour market finally starts to feed through to tax receipts, while other taxes, including VAT, come in strongly.
The Treasury clocked up its biggest surplus in a single month for seven years in January: £8.8bn, putting it well on course to achieve the Office for Budget Responsibility’s forecast of an £83bn deficit for the full financial year.
Indeed, with some self-assessment receipts likely to have come in in February, Osborne may well beat that forecast, creating a little bit of short-term wriggle room.
Looking forward, he is likely to benefit from stronger than expected economic growth. Forecasts have generally been revised up since the turn of the year, in part because of cheaper oil prices, and that tends to make the public finances healthier.
As Goldman Sachs’s Kevin Daly put it in a note earlier this week: “The news on economic activity and borrowing has been relatively positive since the autumn statement and we expect the OBR to revise its growth forecasts higher and its borrowing forecasts lower”.
In addition, lower-than-expected inflation, caused not by the chancellor’s prudence but the plunging global oil price, cuts the repayments on inflation-linked government bonds, or gilts – a boon that could be worth up to £4bn a year to the Treasury.
In total, Daly expects the chancellor to have up to £8bn more to spare in the current financial year than he expected before Christmas, and more than £12bn for 2015-16.
There’s another piece of fiscal magic the chancellor could conjure up, too. Simon Wells, UK economist at HSBC, points out that the Conservatives’ spending plans, as published alongside the autumn statement (and repudiated by their Liberal Democrat coalition partners) allowed them to meet their fiscal targets by a wide margin: as much as £23bn by the end of the forecast period in 2020.
Osborne likes to make much play of his fiscal rectitude; but he could deflate that £23bn safety cushion quite a bit without spooking the City – and without blurring the sharp dividing line between the Tories’ aggressive deficit-cutting plans and Labour’s more modest proposals.
“One important implication of the autumn statement is that because it was tighter than it needed to be, there was already some scope for a giveaway,” says Wells.
There is considerable uncertainty about how the OBR will interpret the implications of lower oil prices for the economy; but it’s likely to be good news for Osborne.
Of course, a chancellor who has styled himself as the one man standing between Britain and the brink of a Greek-style financial crisis is unlikely to spend every extra penny he has to spare.
But Osborne might be able to bring forward his promises to lift the personal tax allowance to £12,000 by 2020, for example (cost: £6bn a year) without blowing his plans too far off course.
Or, given his penchant for political theatre, Osborne might offer something completely fresh, in a final bid to frame the political debate in the runup to polling day. Inheritance tax, council tax, business rates — all are ripe for a radical re-think, and all could win the coalition new friends, just when it needs them most.
