Brown has little to work with in budget

Britain's Chancellor of the Exchequer Mr Gordon Brown will present his eighth budget today, but with public spending running ahead of schedule while tax receipts fall short, he has little room to manoeuvre.

As such, economists expect Mr Brown to try to scrimp together every penny he can to boost the public finances, and perhaps re- announce earlier initiatives to put a rosier glow on the package.

But Mr Brown does have cause to be happy - the British economy is growing strongly compared with those of Germany, France and Japan, while inflation, unemployment and interest rates are all low.

At the same time, gross domestic product rose by 2.3 per cent last year, exactly in line with his 2-2.5 per cent forecast widely dismissed by economic commentators as too optimistic a year ago.

"The Chancellor may be forgiven if he gloats slightly over the improvement in the UK economy's performance and prospects," said Mr Michael Saunders, chief UK economist at Citigroup.

Emboldened by last year's success and by evidence of strengthening growth at home and abroad, Mr Brown is likely to stick with December's prediction that growth will be 3-3.5 per cent this year and next.

But the public finances are Mr Brown's Achilles heel. Mr Richard Iley of BNP Paribas said: "Despite better than expected economic growth, the chancellor's budget sums continue to rest on shaky foundations."

Mr Brown insists he will meet his self-imposed "golden rule" - to borrow only for investment over the economic cycle - but several respected forecasters have warned this will require cutting spending or raising taxes.

To try to boost revenues, the chancellor is thought likely to generate about £2 billion (€2.9 billion) in additional revenues, mostly by fighting tax avoidance rather than pushing through new or higher taxes.

Mr Brown is likely to block specific tax loopholes as well as to launch a more general initiative on tax avoidance.

The Treasury appears to favour US-style disclosure requirements for accountants' tax plans.

To appease business, he is expected to announce the merger of the Inland Revenue with Customs & Excise departments, creating a "one-stop shop" and cutting red tape.

Mr Brown is also expected to say he will review annually the economic case for Britain joining the euro, rather than explicitly ruling out a referendum on entry in this parliament.

The chancellor is certain to state that he will not revisit his five tests on euro entry this year because there has been insufficient progress with the reforms deemed necessary for economic convergence with the eurozone.