Last autumn George Osborne was at the peak of his popularity within the parliamentary party. Considered to have been key to the Conservative Party’s surprise General Election victory and to be leading efforts to change popular perceptions of the party – in part through stealing popular Labour Party policies – he was the clear front runner to be the next party leader.

How quickly times can change: six months on there are emerging concerns about the health of the economy and the handling of a number of policy proposals from tax credits to Sunday Trading reforms have raised doubts over his competency and judgement. Added to this, Boris Johnson’s position on the EU referendum has blown open the future leadership contest.

All this suggests that Osborne needs a successful Budget next week to restate his claim to be an effective Chancellor and political strategist. But coming in the context of widespread scepticism over future growth prospects, a ‘triple lock’ tax rule that limits his ability to raise revenue, and a desire by the leadership not to cause controversy ahead of the EU referendum this will be a tough task. The Chancellor will have to look elsewhere for opportunities to raise tax.

So what can we possibly expect?

  • Drivers could face taxing times – there’s been widespread speculation that the Chancellor could look to raise duel duty. While the low cost of oil will limit the financial impact on consumers, will the Chancellor want to pursue a policy that could damage his attempts to be seen as championing blue collar workers?
  • Rewarding the middle classes – the government have committed to raising the 40p income tax threshold to £50,000 by the end of this parliament with it expected to be £43,000 from April. Don’t be surprised if the Chancellor announces that progress towards the target will be accelerated.
  • Detail on supporting infrastructure investment – the Chancellor is expected to announce a £100bn British sovereign wealth fund, created by merging council pension funds, and could set out plans to part-privatise Britain’s rail network.
  • Clarity on closer alignment of income tax and NICs? – the possibility of merging income tax and national insurance contributions has been widely consideration in the past but is technically very challenging and will create both winners and losers. With the Office of Tax Simplification having recently completed a review, could the Chancellor set out a roadmap towards greater alignment of the two taxes?
  • Tweaks to pensions despite a u-turn? – With growing anxiety amongst Conservative backbenchers and pensions industry, the Chancellor was forced to confirm last week that there would not be major changes to pensions tax relief announced at the Budget. However, reform of this area is still clearly on the Chancellor’s agenda, so could we see greater clarity of the future direction of travel on pensions – but short of major reforms – being set out?

Regardless of the specific policy packages to be announced, it’s clear that Osborne needs a successful budget to regain momentum.  But with a tight economic context and few options for raising revenue, it could be his toughest budget yet.