If you are going to turbo it then you might aswell go the whole way, and get the forged pistons, stronger head gasket, etc, the whole shebang. Otherwise for the amount of boost you are going to be able to "safely" put through the head it just wouldn't be worth it.
A 16v would be an easier starting point, but then you need to swap the inlet over to a scirocco 16v one, so that the throttle body sits on the right of the block, then re-route everything over to that side that was on the left. All bit too much of a arse ache if you ask me if you don't have the budget to accompany it.
Easier way to go would be to 2.0ltr the bottom end, then stick some mild cams in it, and just sort out the breathing and suspension. Not possible in a £500 budget, but get the suspension set up right, and you will be able to carry more speed into corners without heading to the nearest A&E afterwards.