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Independence debate makes for Budget with difference

Independence debate makes for Budget with difference

Just three months have gone by since George Osborne delivered the improperly titled Autumn Statement.

But all eyes will be back on the Chancellor today as he stands up at Westminster for the 2014 Budget.

It is, of course, the last before Scotland’s referendum on independence so it will be more than a little interesting to see what treats Mr Osborne has in store for businesses north of the border.

A Budget for London or for Middle England will simply not do this time out. Mr Osborne knows it is now or never for him to make a real splash ahead of the indy vote.

There will, of course, be time to bask in the significant strengthening of the UK economic recovery in recent months.

There will also be time to ponder the expected upgrading of the UK’s growth forecast by the independent Office for Budget Responsibility a jump which looks set to drive the UK economy past its 2007 pre-recession peak within a matter of months.

But Mr Osborne and his Treasury mandarins know that on this occasion they are going to have to go further if they want to corral the Scottish electorate behind the Better Together flag come September.

So what to do? What will play well?

I would suggest there is likely to be a glass or two of a top-class malt being raised around Scotland’s distilleries come this evening, for a start.

The Scotch Whisky Association has long called for the alcohol duty escalator to be scrapped and excise duty frozen, and it looks a stick-on that they will have something to smile about from the Chancellor’s speech.

Air passenger duty the levy on domestic air travel may also be on the radar for reform.

It is a tax which is loathed within the industry and one that has been campaigned against by the likes of the Scottish Chambers of Commerce for putting domestic business travellers to extra expense and the country’s air sector at a competitive disadvantage.

The most vocal critics of APD argue a scrapping of the levy could actually boost the Treasury’s coffers in the long-term. They say it would lead to increased productivity in the sector and provide a business boost through the establishment of new air connections. Surely the number crunchers at Number 11 have been looking long and hard at that.

And then there’s the big one, the North Sea and its diminishing but still hugely valuable and potentially referendum game changing oil resources.

The Chancellor has had a rocky relationship with the sector since Budget 2011, when he unexpectedly hiked the supplementary charge on oil and gas producers.

That went down like the proverbial lead balloon and was blamed for a fall-off in production from the UK Continental Shelf.

In recent weeks Mr Osborne has again found himself at odds with the industry over his crackdown announced in December’s Autumn Statement on tax avoidance schemes used by some oil service companies.

In a leaked letter, industry body Oil and Gas UK called for the proposed measure to be dropped, stating it could have a serious adverse impact on investor confidence, UK Continental Shelf exploration and overall production costs.

Given the current political backdrop, I expect a conciliatory tone to be adopted by the Chancellor and I would not be overly surprised if that crackdown is quietly set aside.

Instead, I expect Mr Osborne to move to strongly align himself with the recommendations from Sir Ian Wood’s review which recently set out a bold new vision for the UKCS aimed at recovering £200 billion of further North Sea reserves over the coming decades.

At 12.30pm today the Chancellor will begin his charm offensive and lay down his markers for the UK’s economic future.

The speech will be forensically dissected by friends and enemies at Westminster and Holyrood, but I shall be more interested in the immediate reaction of the business community.

But it will be only with the passing of time that we shall be able to tell whether Mr Osborne has pulled off the masterstroke he so desires or handed the initiative to his political rivals.