The budget delivery next week comes under the grim shadow of war and a hastening cost of living crisis, with Chancellor of the Exchequer Rishi Sunak having recently warned of the “significant economic uncertainty” faced by the UK.
Alongside the chancellor’s House of Commons speech, the Office for Budget Responsibility will publish its latest forecasts for the economy and public finances.
Sunak has been left with challenging decisions ahead of the Spring Statement, with recent events potentially overriding previous plans to make up for historic borrowing during Covid with a planned lift to National Insurance.
Furthermore, some forecasts suggest the Chancellor could need to borrow and spend up to £12bn to avoid a new financial crisis, with another predicting that recent inflationary pressures potentially could lead to borrowing overshooting estimates from the Office for Budget Responsibility (OBR) and the EY Item Club estimating total public sector borrowing will rise from an expected £83bn to £100bn in 2022-2023.
However, the Treasury is likely to gain an extra £12.5bn in income tax as soaring inflation doubles the effect of planned tax freezes, according to the Institute for Fiscal Studies.
READ: Chancellor faces tough decisions as Spring Statement approaches
"There are likely to be calls to scrap the National Insurance rise or maybe even put cash in household's pockets, but for an economy that's suffering an inflation problem you need to be very, very cautious of adding demand,” says Kallum Pickering, senior economist at Berenberg bank.
Pickering suggested the Chancellor may alternatively focus on the supply-side, subsidising energy suppliers in the UK before trying to recoup money over time once prices are normalised.
READ: Giveaways on the cards at Chancellor Rishi Sunak's Budget next week
As well as a National Insurance u-turn, potential giveaways could include measures to help with household energy bills and petrol tank refills.
The controversial £200 “rebate” on October energy bills for all households could also be hiked, according to some reports.
READ: Four tax hikes to look out for in the Spring Statement
Other changes from a Chancellor looking to stimulate economic growth are rumoured to include an overhaul of Britain's corporate tax system to encourage capital investment from businesses, while also redesigning the R&D tax credit system that is seen as misfiring.
There have also been calls for benefit payments to be increased, to lessen the impact on inflation for less well-off families, with the Resolution Foundation thinktank suggesting an 8% rise, compared to the 3.1% increase set based on inflation last September.
With the other hand he may taketh, with reports that the Chancellor plans to plug some of the gap in government coffers by tempering high incomes during Covid through a 1.25 percentage point hike on dividends taxes.