San Francisco Frontiers - UK awaits voter-friendly budget before election

Huge giveaways are not expected, however, as stubbornly-high inflation hikes repayments on state borrowing, undermining the ability to stimulate the recession-hit UK economy.

Finance minister Jeremy Hunt, who unveils his budget before parliament, dampened hopes of major tax cuts in comments at the weekend.

"It's going to be a prudent and responsible budget for long term growth," Chancellor of the Exchequer Hunt told Sky News.

In an interview with the BBC, he said: "I think the most unconservative thing I could do would be to cut taxes by increasing borrowing.

"Because that's just cutting taxes and saying that future generations have to pick the tax up."

- 'Weak outlook' -

Britain is expected to face a general election this year, though the exact timing is unclear, as Sunak looks to claw back ground from Labour leader Keir Starmer.

The budget "could be the last fiscal set-piece before the next general election, and may end up defining the campaign", noted the Institute for Fiscal Studies think tank.

"Despite pressure to cut taxes, the outlook for the public finances remains weak," the IFS added.

Kathleen Brooks, analyst at XTB trading group, said the fiscal headroom available to Hunt is about £20 billion ($25 billion), lower than an average of almost £30 billion since the Tories came to power in 2010.

Tax cuts could impact public investment in key areas, such as the National Health Service, which is creaking under the strains of huge waiting lists and strikes by doctors seeking higher pay.

"If tax cuts are seen as being made in the face of crumbling public services that's a problem," Tim Bale, professor of politics at Queen Mary University of London, told AFP.

While UK inflation is easing, notably on cooler energy bills, a current annual rate of four percent is still double the Bank of England's target.

The central bank has lifted interest rates to 5.25 percent, a 15-year peak, to dampen inflation after it soared to the highest level in more than four decades in late 2022.

Hiking borrowing costs has meanwhile worsened a cost-of-living crisis as commercial banks go on to increase their own interest rates on loans, including mortgages.

- Tax grab? -

UK media reports suggest that the Tories could use the budget to steal a pledge by Labour, should it win the election, to scrap a loophole enabling Britain's wealthiest residents to reduce their tax bill.

Non-dom status refers to people living in Britain whose permanent domicile is abroad, allowing them to avoid UK tax on income earned outside the country.

"As for stealing some of Labour's clothes by supposedly hitting the wealthy, that will cause Labour some problem since they've made spending promises on that front," noted Bale.

He said the Conservatives need not "worry about donors deserting them".

"Most ultra-high net worth individuals funding the Conservatives are far more worried about a Labour government than they are about paying Jeremy Hunt a little more money in tax."

N.Flores--SFF