Battle lines drawn for pre budget report

CHANCELLOR Alistair Darling faces his toughest week yet at the helm of the Treasury as he prepares to deliver the 2009 Pre-Budget Report (PBR) to Parliament on Wednesday. <br /><br />He is likely to downgrade his forecast for 2009 GDP &ndash; admitting the UKshrank much more than he predicted &ndash; but City economists expect him to hold his 2010 GDP growth forecast at 1-1.5 per cent, if only for the opportunity to score political points should the recovery gain ground next year. He will also be tempted to hike his forecast for borrowing in 2009/10 to &pound;190bn or so. <br /><br />Darling is under pressure from all fronts to establish a credible plan to return the UK to fiscal sustainability at a faster rate than set out in the Budget last April, while ensuring the economy does not slump back into recession from tightening too early. <br /><br />Although an official close to the planning for the PBR said that &ldquo;we don&rsquo;t anticipate any dramatic fiscal tightening&rdquo;, officials were still working on a range of possible policies on Sunday night.<br /><br />There was talk that the chancellor will announce the introduction of one or several tax hikes to increase recession-hit revenue. These include the possibility of a windfall tax on bank bonuses; a rise in capital gains tax; an increase in inheritance tax; and higher National Insurance or income tax rates. <br /><br />Labour&rsquo;s Fiscal Responsibility Bill &ndash;&ensp;which will stipulate that the deficit must be cut over the next few years but doesn&rsquo;t say how &ndash; has already been decried as ineffective. <br /><br />But with the prospect of the spring general election and the possibility of a hung parliament overshadowing the event, Darling is expected to use the opportunity to try to establish political dividing lines by attacking &ldquo;the rich&rdquo; and bashing the City. <br /><br />Citi&rsquo;s Michael Saunders says populist tax hikes will be more politically motivated than fiscally prudent.