Brown's sums under City microscope

CHANCELLOR Gordon Brown will today insist that his fiscal rules will be met in a Budget likely to include a sprinkling of pre-election 'sweeteners' totalling up to £3bn.

In the City, economists will scrutinise Brown's arithmetic to see whether his Golden Rule - to borrow only to invest over the economic cycle - is achievable. But regardless of whether it is hit or missed, tax rises after the General Election look inevitable.

Brown is likely to stick to the growth forecasts he made in December's Pre-Budget Report, which saw the economy expanding by between 3% and 3.5% this year before slowing to 2.5%-3% in 2006 and 2.25%-2.75% in 2007.

The latest poll of independent economists - conducted, ironically, by the Treasury - suggests that the Chancellor is being too optimistic. On average, economists expect growth of 2.6% this year, slowing to 2.3% in 2006. However, Brown has often been proved right on his economic forecasts and is likely to stick to his guns.

Slower tax revenue growth and higher Government spending forced Brown in December to admit that the public finances will plunge deeper into the red. His forecasts for public sector net borrowing of £34.2bn in 2004-5, £33bn in 2005-6 and £29bn in 2006-7 are expected to be left untouched today.

David Hillier, chief UK economist at Barclays Capital, said: 'Borrowing of this size will require offsetting tax increases at some point. But with an election just around the corner, these are not going to announced today. This will only be delaying the day of reckoning. The first issue that the Chancellor- - whoever it may be - will have to face after the election is how to fill the ever-expanding hole in the public finances.'

Roger Bootle, economic adviser to Deloitte, said: 'The combination of political pressure and the small amount of leeway against the Golden Rule points to a modest package of tax cuts and spending increases in today's Budget. We expect a giveaway of some £3bn, targeted at pensioners and families.'

Philip Shaw, chief economist at Investec, expects a package, totalling under £2bn. 'Brown has very little room for a pre-election giveaway, having already shot his bolt over the past few years,' he said. 'At most, he may find a very modest amount of cash to make the correct political noises in key areas such as health and education.'

Among widely-tipped measures are increases in the starting-rate thresholds on stamp duty and inheritance tax, a reduction in pensioners' council tax bills, an increase in family tax credits, and a fuel duty freeze.

Plans to issue ultra-long, 50-year gilts are also expected. This would be the longest dated gilt in issue apart from about £3bn of 'undated' bonds, some stretching back to the First World War, which have no set redemption date.