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Chancellor Alistair Darling’s pre-Budget statement made in October last year forecast increased corporation tax, changes to capital gains tax, legislation against income-splitting and rises in fuel duty in his first Budget on 12 March.

SmallBusiness.co.uk has these predictions from Roger Bootle, economic adviser to financial services company Deloitte, on what to expect.

• The Budget comes at a time when the apparent needs of the economy and the public finances could hardly be further apart. His room for manoeuvre is pretty tight, but he should be able to afford a small tax giveaway to help support the economy.

• Darling will be forced to acknowledge that the outlook for the economy has weakened since October’s pre-Budget report. The strong recovery he anticipated next year now looks much less likely.

• At the same time, however, the state of the public finances points to the need for a fiscal consolidation. Although Darling’s pre-Budget report forecast public borrowing of around £38 billion this year now looks broadly on track, this is a poor starting position when the economy looks set to slow sharply.

• Meanwhile, the nationalisation of Northern Rock has increased strains on the public finances by adding around £100 billion to public sector debt. Darling will adapt his financial rules accordingly. But in the event of a major housing market downturn, it could leave the taxpayer exposed to significant losses.

• In short, the Chancellor is caught between a Rock and a hard place. The result is that this Budget is unlikely to set the world on fire and certainly won’t emulate the US government’s forthright action to support its beleaguered economy with a major financial stimulus.

• Nonetheless, January’s timely surge in corporation tax receipts has probably made room for a small package of net tax cuts. A further cut in income tax is a possibility, as is a reduction in stamp duty to help the ailing housing market. Darling could also suspend the planned rise in fuel duties, although this would not help the government’s environmental credentials.

• A small giveaway should not provoke an unfavourable response from the Bank’s Monetary Policy Committee. While it will have a detrimental effect on the public finances in the near-term, if it helps stop the economy from descending into recession then it might ultimately prevent a worse disaster further ahead.

The 2008 Budget has now been announced. Click here for what the the changes mean for your small business.

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