My current 1.0 stock brakes fit just inside the 13" steelies

My question is if I swap to 13" alloys will my g40 brakes fit or do I need to step up to 14"?

They're no bigger in terms of diameter (G40's came with 13" wheels), the only catch is the carriers on G40 brakes can catch on the rims. Some people skim the carrier a bit with the grinder, there's plenty of other versions of the VW2 carrier that clear fine though.

So would my carrier be suitable for the upgrade

Yes you can fit G40 or VW11 calipers on VW1 carriers. I have on mine in order for the wheels to clear. 

But if you're sticking with standard VW wheels then 13" wheels should fit fine with either carrier.