Darling prepares for last throw of the dice

l Darling is expected to stand by his growth forecasts of between 1 and 1.5 per cent this for year. In 2011, he expects the economy to grow between 3.25 and 3.75 per cent.

Public sector net borrowing will come in around £10bn lower than the chancellor’s £178bn forecast, although it is still expected to be at a post-war high of around 12 per cent of GDP.

The chancellor is likely to forecast a 1.75 per cent rise in CPI inflation in 2010, falling to 1.6 per cent in 2011.

As set out in December’s pre-Budget report, total public spending will rise by £31bn this year, a 2.2 per cent rise in real terms.

From 2011, total public spending will fall, but there is unlikely to be any detail on cuts in today’s Budget. Instead, Darling will try to reassure the markets by announcing which departments will bear the brunt of initial cuts.

There are unlikely to be any pre-election “giveaways”, although the chancellor will announce a handful of measures to stem unemployment and boost green investment.

Darling will confirm plans to freeze public sector pay for the highest earners.

In the pre-Budget report, the chancellor lowered his estimate of the total taxpayer loss from the bank bailout from £50bn to £10bn. He will confirm this, as well as backing for a global bank levy to help repair public finances.

All income tax bands expected to be frozen meaning a higher-rate taxpayer earning more than £43,875 will pay an additional £489 in tax.

A new additional rate of income tax at 50 per cent will be announced for those on incomes over £150,000.

There are no plans to extend the 50 per cent levy on individual bank bonuses above £25,000. The measure is likely to end on 5 April 2010.

Dividends potentially liable to the higher rate of tax will be taxed at 42.5 per cent. The dividend trust rate will be increased to 42.5 per cent, and the general trust rate of tax will be increased from 40 per cent to 50 per cent.

Personal allowances will be withdrawn for those with adjusted net income above £100,000, reducing by £1 for every £2 of income above £100,000.

From April 2012, the starting point for the 40 per cent income tax rate is likely to be frozen for one year at £43,000.

All employer, employee and self-employed rates of national insurance (NI) to rise by a further 0.5 per cent from April 2011. Starting point from which NI is payable to be raised.

VAT returned to 17.5 per cent on 1 January from 15 per cent, and the chancellor has said he is unlikely to announce further rises in the Budget.

The chancellor is unlikely to announce any changes in the headline rate of corporation tax.

He is expected to reaffirm plans to reform the controlled foreign company rules.

A “patent box” for UK companies is likely to be announced, applying a reduced rate of corporation tax of 10 per cent for income derived from patents.

In the pre-Budget report, Darling said the basic state pension would rise by 2.5 per cent, but earnings-based top-ups and a reward for delaying drawing the state pension will be frozen. Some expect Darling to announce a pension tax credit to compensate those who have lost out.

For those earning over £130,000, employer pension contributions are likely to be included in definition of tax income relating to pensions tax relief.

Darling is likely to restrict tax relief on pensions savings from April 2011 for people with gross incomes of over £150,000.

Government contributions to public service pensions will be capped.

Individual inheritance tax allowance is likely to be frozen at £325,000 for the next year.

Alcohol duty is expected to rise by five per cent, under the existing duty escalator system that imposes rises of two per cent above inflation.

Darling is likely to hike duty on cigarettes, cigars and tobacco, citing the cost to the health service.

Darling is expected to announce a crackdown on offshore tax evasion that would see the maximum penalty double to 200 per cent of total tax owed.

He will also outline new measures to reduce tax avoidance schemes.

The government will unveil a new £2bn investment fund to finance green projects such as wind farms and high-speed railways.