(MENAFN- ProactiveInvestors - UK) Every UK budget speech is an exercise in giving with one hand while taking away with another.
If the latter can be achieved without anyone noticing so much the better but on Wednesday it is likely the chancellor of the exchequer George Osborne will turn to fuel duty and that's not the sort of tax hike that goes unnoticed.
Given the declining price of petrol at the pumps economic forecasting group the EY ITEM Club says this could be an opportune moment for the chancellor to end the five year freeze in fuel duty perhaps beginning with a rise in line with inflation.
'This would imply a modest 0.8% increase in 2016-17 translating to an extra 0.6p on a litre of petrol' the economists at the ITEM club say.
Some reports suggest the chancellor could hike the duty by more than inflation rate and assuage protests by using the money raised to help the hard-hit North Sea oil sector which would be welcomed in the industry particularly by the smaller operators such as Jersey Oil and Gas PLC (LON:JOG).
A report in the Financial Times last month indicated that the falling oil price had led to a collapse in profits for British companies operating in the North Sea with losses for last year rising above 6bn.
The study carried out on behalf of the Pink 'Un by Company Watch showed that half of the 22 UK-listed companies operating in the North Sea are losing money.
Hints dropped in the Sunday papers indicate the pensions industry's lobbying has paid off and that Osborne will look elsewhere to raise revenue but the finance minister almost certainly has his sights on punishing some elements of society.
Although those on disability benefit have already been targeted in previous budgets it would not be a surprise to see more cuts made in this area.
To quote a former chancellor he may well 'squeeze them until the pips squeak'.
Bashing bankers has rarely proved an unpopular move but the sector is vitally important to Britain's financial well-being and after a period of 'rope-a-dope' the banks are back floating like a butterfly and stinging like an unauthorised overdraft charge and having failed to land much of a glove on them Osborne may turn instead to the other mainstay of financial services insurance and the introduction of an insurance premium tax.
That would give him some leeway to make good on manifesto promises such as further rises in the personal tax allowance and the basic rate tax threshold.
His room for manoeuvre is limited however as he has committed to balancing the budget by the end of this parliament.
Quoting forecasts from the Office for Budget Responsibility (OBR) Osborne is expected to say the country remains on track to reach a surplus in fiscal 2019/20 as required by the Charter for Budget Responsibility.
Borrowing this year is set to come in at around 78bn a good five billion above the OBR's forecast but the recent fall in gilt yields will result in lower interest repayments that will pretty much cover that shortfall.
Pantheon Macroeconomics thinks a projection of a 10bn surplus in 2019/20 is based on series of optimistic assumptions on future tax revenues and spending savings.
With the Conservative party enjoying only a slender majority in the House of Commons the pressure to throw the plebs a bone or two could derail Osborne's avowed austerity plan.
'For a start the OBR's economic forecasts look too strong. In November it expected GDP [gross domestic product] growth to average 2.4% over the next five years and it will probably only nudge down that forecast next week but GDP growth has matched or exceeded that rate in only one year2014since the recession' the research house noted.
Pantheon said the OBR blithely assumes that government spending as a percentage of GDP can be cut to levels seen in the early years of the new millennium under Labour but cautions that measures to reduce the welfare bill in recent years have produced more meagre savings that the OBR had anticipated.
'Six departments are required to cut day-to-day expenditure in 2019/20 by more than 40% from 2010/11 levels. It is questionable whether they can find such gigantic savings and still deliver politically acceptable levels of public service' Pantheon opined.
UBS reckons the forecast amount of gilt issuance for 2016/17 to be 142bn almost 15bn higher than in 2015/16 because of slower nominal GDP growth an overshoot in the deficit in 2015/16 and other factors.
'So the demands from the public sector for funding look set to remain high underlining some of the vulnerabilities going into the EU referendum' it predicted.
Meanwhile after the huge embarrassment of the government's 'triumph' in negotiating a tax deal with Googlethe UK's result here being akin to winning the Crown Paints Trophy in comparison to France's victory in the European Championshipthe chancellor may beat his chest and threaten to crack down harder on tax avoidance by multi-national corporations.
'Overall the Budget is likely to leave the big picture the same; namely that deficit reduction adds to the challenges facing the UK economy this year but at least rising real earnings put households in a reasonably good position to deal with it' Capital Economics suggested.
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.