Chancellor's numbers game

Business Secretary Vince Cable signalled last week that the LibDems are willing to see the 50p tax rate for those earning above £150,000 scrapped in exchange for a mansion tax on high value property.

However, Francesca Lagerberg, head of tax at Grant Thornton, says: "We do not yet have the report on the money raised by the 50% tax rate but Osborne cannot remove it while public sector workers are undergoing a pay squeeze. Therefore, I expect it to stay until the end of this parliament although it is unlikely that we will get any firm date for it to be scrapped."

Ms Lagerberg also doubts whether the Chancellor will bow to Business Secretary Vince Cable's call for a £2 million mansion tax, as it "breaches the Tory manifesto commitment not to revalue homes for council tax".

The Centre for Policy Studies says it would anyway raise only £1 billion a year. That would go only a little way to fund a faster rise in the personal allowance, but Ms Lagerberg believes the Chancellor will merely reaffirm the Coalition target of raising the allowance to £10,000 by April 2015 – it is due to rise to £8130 next month. She said: "Although there are suggestions of a more rapid rise, this is unlikely to feature as the cost of implementing it is so high."

The biggest fundraiser for the Chancellor would be the estimated £7bn he could divert to the Treasury by scrapping all higher rate tax relief on pensions, a policy favoured by the LibDems, although Shadow Chancellor Ed Balls came off the fence last week to call for it to be scrapped for 50% taxpayers only.

Otto Thoresen, director general of the Association of British Insurers, said: "The last Labour Government's proposed tax relief tapering rules for people earning above £150,000 were scrapped by the incoming government because they were unworkable, and replaced with a simpler restriction that raises the same revenues."

He added: "Labour's constant changes to the pensions system while in office did much to undermine savings. Changing higher rate relief rules for the third time in four years as Labour proposes would send the signal to everyone that it is not worth them bothering to save into a pension because the tax rules will always be changing."

Tom McPhail, pensions expert at Hargreaves Lansdown, said: "No-one who advocates a restriction to higher rate relief has yet come up with a credible way of achieving this goal while also keeping complexity down to an acceptable level. So unless the Treasury is really, really desperate for money, we don't think this will happen."

But might the Chancellor tinker with tax-free lump sums, currently 25% of your retirement pot? Ricky Murray, tax partner at Johnston Carmichael in Glasgow, says making any changes to the tax-free cash rules would be drastic – and retrospective. "What you are then doing is attacking people who have built up a pension for 20 to 25 years and saying some of that is now going to be taxable."

Mr McPhail says any retrospective change "would be widely seen as a betrayal of investors' trust", but if it were to apply only to future accruals it would again be difficult to implement and slow to produce any returns.

More probably Mr Osborne may cut the annual allowance. In April 2011 it was reduced from £255,000 to £50,000 as part of the trade-off to reinstate full tax relief at investors' marginal rates. A further cut to £40,000 or even £30,000 "might help to appease those who object to the tax relief benefits enjoyed by higher earners", Mr McPhail said. The average annual contribution into a pension is only £2000.

Neil Whyte, tax partner at PKF, suggests two other ways the Chancellor might tick the right political boxes: by limiting total tax-free Isa funds to, say, £500,000, and raising the top rate of capital gains tax from 28%. In both cases, he says, such moves against the wealthy "would not yield much tax revenue but would send an important political message in these austere times".

Nationwide and Saga are both calling on the Chancellor to increase the current cash ISA limit from £5340 to £10,680, equivalent to the current equity ISA maximum.

Ros Altmann, director-general of Saga, said: "Typically as we get older we like to hold more of our investments in cash and live off the interest earned. The way the current ISA system works is unfair to older savers as they can only benefit from half the full ISA allowance each year. These people have already been punished enough by the effect of Government policy on their savings income, and while interest rates remain so depressed and inflation rates remain high, it is only fair that older savers should have the flexibility to use the full annual ISA allowance for their cash savings if they need to."

On the thorny issue of changes to child benefit, which currently mean that from April 2013 a family with a single earner of £42,475 will lose all their child benefit but a two-earner family with an income of up to £84,950 will not, Mr Balls said: "We have called for an urgent review of the child benefit changes."

George Bull, at accountants Baker Tilly, says: "What started as a simple idea has many problems in implementation. Either the rules end up being rushed, creating more anomalies with those most affected being those unable to plan around them, or there is a period of consultation which will mean that the planned 2013 introduction will need to be deferred. Politically difficult as it may be, the best answer may be to scrap the idea – it may also be the cheapest solution."