Chancellor Philip Hammond unveils the Autumn Budget on Wednesday and the pressure is on to ease up on austerity at a time of heightened economic uncertainty following the Brexit vote.
Hammond has vowed to achieve a budget deficit of less than 2% of gross domestic product (GDP) by 2020, from 2.6% for 2016/17.
But he may need to abandon this target if he wants to increase spending on public services after some politicians blamed austerity for the Conservatives losing their majority in a snap general election in June.
The Office for National Statistics (ONS) on Wednesday revealed the deficit grew by 7% year-on-year to £8bn in October, more than the market forecast of £7.5bn, as higher inflation pushed up interest payments on index-linked gilts.
However, the deficit for the current financial year from April to October reached its lowest level in a decade, falling £4.1bn to £38.5bn.
The Office for Budget Responsibility had forecast public borrowing would come in at £58.3bn in the March Budget but is expected to revise up the shortfall after downgrading UK productivity growth estimates.
“Wednesday’s Budget is not going to be easy for the Chancellor,” said Howard Archer, chief economic adviser to the EY Item Club.
“The Chancellor is under pressure to increase levels of government spending, but also faces larger deficits over the medium-term due to the OBR downgrading its productivity growth forecasts for the UK."
Housing crisis
One of the areas that will likely to be included in the Autumn Budget will be stamp duty and the housing crisis.
Prime Minister Theresa May last week repeated her promise to build more homes to address a supply shortage. The Budget is therefore likely to increase measures to facilitate construction and help first time buyers to get on the ladder.
North Sea oil and gas
Another area of focus includes addressing the waning North Sea oil and gas fields, which is are vital to Scotland’s economy. Hammond told the Sunday Times he’s looking into a possible change in the tax rules to support the industry.
University fees will also likely get a mention after May vowed to keep them frozen until 2019. Hammond is expected to announce that the government has launched a review of student finances with an age-dependent income tax allowance for those under 30 as a possible option.
Public sector pay
The government is being urged to remove the public sector pay cap of 1%. In response, Hammond has already announced police and prison officers would be given a 1% pay rise plus a 1% bonus for 2017-18.
But the Institute for Fiscal Studies (IFS) has placed doubts on whether the government would abolish the cap altogether and raise wages in line with inflation by saying it would cost the Treasury up to £4bn a year.
Artificial intelligence
The government is expected to boost investment in technology, including £75mln towards artificial intelligence (AI), reforms to allow driverless cars on the roads by 2021. It is also anticipated to announce £400mln for electric charge points and £160mln for next-generation 5G across mobile networks.
Self-employed
The issue of what to do about those who are self-employed and enjoying significant tax benefits may rear its ugly head once again after the government made a humiliating U-turn on its plans to increase national insurance contributions for such workers.
Hammond is said to be considering a £1bn raid on freelance workers to address so-called “disguised employment” in the private sector.
The usual topics of personal tax thresholds, pensions and corporation tax are also expected to be covered in the Budget.
For more on this, READ: Budget 2017: What to expect as Chancellor Philip Hammond lays out Brexit spending plans
Significant events expected:
Finals: Cambria Automobiles (LON:CMAB), Countryside Properties (LON:CSP), Euromoney Instiutional investor (LON:ERM), Sage Group (LON:SGE), SSP Group (LON:SSPG)
Interims: Accsys Technologies (LON:AXS), Biffa (LON:BIFF), Charles Stanley Group (LON: CAY), Creightons (LON:CRL), Eckoh (LON:ECK), New River REIT (LON:NRR), Quiz (LON:QUIZ), United Utilities Group (LON:UU.)
Economic events: UK Autumn Budget