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 Chancellor of the Exchequer George Osborne will lift 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.
Andrew Watters, a tax expert at law firm Thomas Eggar, said: "With oil prices so low, the Chancellor could be tempted to add a few pence to the levy on petrol and diesel."
Scapegoats
A fuel duty hike is tipped to be among some modest further tax rises or spending cuts in the Budget to keep the government on course to meet its 2015/16 fiscal target.
Economists say Osborne is highly unlikely to meet that target given lower than expected UK growth in 2015 and clear weakening in the domestic and world economies since last November's Autumn Statement.
But political pundits say he is set to shy away from previous tactics of blaming the eurozone for Britain's ills when his neighbour at Number 10 is pulling out all the stops to keep the UK in the EU.
Indeed, he is likely to look elsewhere for scapegoats, this time blaming the global economic slowdown in general and the downturn in China in particular.
With the referendum on June 23, City scribblers say Osborne is unlikely to want to rock the boat.
Analysts at UBS said: "With this Budget coming in the run-up to the referendum on UK membership of the European Union, we would be surprised to see major policy initiatives announced."
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”.
Banker bashing
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.
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 year—2014—since 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 Google – the UK's result here being akin to winning the Johnstone Paint Trophy in comparison to France's victory in the European Championship – the 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.
The Budget is likely to be Wednesday's main event, but the drug sector is likely to provide interest.
Sector companies reporting include Hikma Pharmaceuticals PLC (LON:HIK), SkyePharma PLC (LON:SKP), Surgical Innovations Group PLC (LON:SUN) and Advanced Medical Solutions Group PLC (LON:AMS).
Other company news due out on Wednesday:
Finals: Taptica International Ltd (LON:TAP), Tritax Big Box Reit PLC (LON:BBOX)
Interims: Finsbury Food Group PLC (LON:FIF), Produce Investments PLC (LON:PIL), Smiths Group PLC (LON:SMIN)
Economic: UK – Average earnings, Unemployment; US – Building permits, Capacity utilisation rate, Consumer prices, Crude oil inventories, Federal funds rate & FOMC economic projections, Housing starts, Industrial production