More cuts feared in next week’s Budget as Osborne lines up a law forcing the government to run a surplus in two years

Experts expect restrictions to pensions tax relief for higher earners

Some also predict Osborne may look to overhaul the bank levy

Chancellor George Osborne could this week usher in deeper than expected spending cuts by forcing the Government to run a budget surplus within two years.

Wednesday’s Budget, the first under a majority Conservative Government for 18 years, is expected to confirm that it will be set in law that all governments must ensure there is a budget surplus ‘in normal times’.

However, Martin Beck, senior economic adviser to the respected forecasting group the EY Item Club, said: ‘The Chancellor’s new fiscal rule could entail an even tighter fiscal squeeze and even greater departmental cuts may be on the cards if he seeks to achieve his surplus target within the next two years.

‘We would like to see the Chancellor opt for a growth-friendly definition of his new framework, setting out to achieve a surplus over a five-year period.’

The Budget is also expected to include a further clampdown on wealthy individuals claiming ‘non-domicile’ status – meaning they do not have to pay tax on their offshore earnings – as part of a £5billion clampdown on tax avoidance.

There will also be moves removing millions of family homes from inheritance tax.

During the 2015 Election campaign the Tories were wrong-footed by a Labour pledge to get rid of the tax benefit. The promise was one of the few in the Labour manifesto that ignited significant public support.

It is thought that Osborne is considering raising the annual charge currently levied on non-doms and also changing the rules so that non-dom status cannot be inherited.

The Chancellor is unlikely to announce any changes to the Treasury’s Google Tax. Companies affected by the tax – which in the past have arranged their businesses so their UK arms make little taxable profit – are unwinding complicated tax structures to avoid being hit.

Tinkering with the Google Tax is being seen by many as pointless because later this year the Organisation for Economic Co-operation and Development is due to announce measures to restrict companies from shifting profits overseas.

The Institute of Directors said in its Budget submission that the Chancellor should aim to create an ‘equity economy’ with simple and sensible taxes on wealth and moves to encourage people to invest in small businesses.

Director General Simon Walker said: ‘The priorities must be a consultation on merging capital taxes, raising the Annual Investment Allowance and creating a single personal tax relief for business investment.’

Many are expecting restrictions to pensions tax relief for higher earners.

Tom McPhail, head of pensions research at broker Hargreaves Lansdown, said: ‘Our great concern is that the Government will simply cap tax breaks for higher earners.

‘This would do nothing for the vast majority of the population except make the pension system marginally more complicated than it already is.’
There have also been suggestions that Osborne may look to overhaul the bank levy following HSBC’s suggestion that it might leave the country.

Bank sources said, however, that they would be surprised to see a reduction in the charge, but that the Chancellor could launch a review of bank taxation or set out long-term plans for the levy.

The Government has already said there will be no rises in income tax, VAT or national insurance in the Budget.

Meanwhile, Treasury Minister David Gauke said last month that the Government would not reduce the headline rate of corporation tax further. It is feared that individuals would set up companies to be paid through if corporation tax rates were slashed.