Preview: UK Budget 2007

Shortly after noon tomorrow Chancellor Gordon Brown delivers his eleventh and final Budget speech. He does so against a backdrop of worrying inflation numbers and an explosive interview by a former Cabinet Secretary accusing him of 'Stalinist' behaviour.

Newspapers have been awash with pre-Budget previews. Press reports have signalled a lean budget, some 'green' tax measures, and an above-inflation boost to education spending. The Comprehensive Spending Review numbers for 2008 to 2010 will be released. I also expect the announcement of a cut in company tax rates. Chris Giles at the Financial Times says the Chancellor to bow out with ‘big Budget’:

Gordon Brown will bid farewell to the Treasury on Wednesday with what senior officials have described as a “big budget” that will not only see education placed at the centre of his political programme but which one insider said would also herald changes to the corporate and personal tax systems.

With public finances tight, the changes will be introduced in a revenue neutral package over many years. Any reductions in tax rates will be offset by tax increases or spending cuts elsewhere. Many at Westminster on Tuesday night predicted changes to corporation tax after the chancellor told the FT last week that this would be a “budget for business” and following a series of warnings that companies might relocate to lower-tax jurisdictions.

So sure are the Conservatives that the chancellor is planning a cut in corporation tax that they announced pre-emptively their own proposal for a 3 pence in the pound cut this week.

...To ease some of his problems on the public finances, he will also privatise a large chunk of the £16bn student debts owed to the exchequer. But the main focus will be on tax. The Treasury has indicated it will align vehicle excise duties closer to carbon emissions, raising taxes on 4x4 gas guzzlers. Mr Brown is likely to increase the annual limit for savings in individual savings accounts from £7,000 to £7,300 and extend his pet R&D tax credits scheme for large and small companies.

Peter Walker at the Guardian News Blog has helpfully summarised this year's newspaper predictions: Papers predict lean and green budget from Brown

...The perceived wisdom is that the 2007 budget will be simultaneously green and lean, but will also contain a few eye-catching initiatives to boost the image of the man likely to become prime minister in the coming months.

More or less every newspaper has confidently predicted some kind of initiative on the environment, most notably a rise in road tax on gas-guzzling vehicles such as 4x4s.

According to the Daily Telegraph, road tax for the least economical vehicles will go up from £210 to more than £400 over the next two years.

The Guardian and Daily Mail say that Mr Brown will also attempt to wrest the green initiative back from Mr Cameron by announcing tax breaks for households generating their own energy from renewable sources.

This would involve exempting people from income tax on any income they make selling excess power from their solar panels and wind turbines back to the national grid.

On the big numbers of macro-finance, Mr Brown is heavily tipped to announce some belt-tightening in the public finances.

According to the Sunday Times and others, he will announce tens of thousands of extra job cuts in the public sector.

However, not all areas of state spending will suffer, despite one aide to the chancellor telling the Daily Mirror that this would largely be a "hairshirt budget".

Also according to the Mirror, and some others, Mr Brown will push forward plans to increase per-child spending in state schools to the levels of privately educated pupils, increasing the education budget to £90bn in 2011 from £76bn now.

Meanwhile, the Financial Times confidently predicts a significant boost to research and development tax credits for British companies.

The same paper has noted that Mr Brown faces pressure to cut company taxation after the Conservatives pledged to cut the headline rate of corporation tax by 3p, while adding that this could also have been a pre-emptive move by an opposition suspecting that the chancellor plans the same.

On personal taxes and duties, the Guardian expects income tax thresholds to increase in line with inflation, labelling this "a sneaky way of raising more taxes, as wages traditionally grow faster than prices".

The Sun, meanwhile, says smokers will pay 10p in extra duty on 20 cigarettes, beer will go up 1p a pint and wine by 5p a bottle.

On a slightly less traditional subject, the Mirror says that Mr Brown will unveil a headline-grabbing initiative to ensure that some profits from TV phone-in quizzes are given to charities aiding gambling victims.

He will also announce a "full scale phone-in probe" following recent scandals over the contests, the paper said.

In a similar vein, the Sun predicts that the budget will hand £30m to telephone helplines aimed at vulnerable children.

Not long now until we find out for sure.

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Because of Taylor's theorem, nonlinearity can be approximated by including squared, cubed, etc. terms - and furthermore, if squaring doesn't add more explanatory power, neither will further articulations of curvature.

The dangers of adding unlimited squared and cubed terms is the same as those of calibration.

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