Chancellor looks to green budget

The economic outlook gives Mr Darling less room to manoeuvre

Chancellor Alistair Darling's first budget is expected to include new and higher green taxes to help boost government finances, analysts said.

With the economy hit by the global credit squeeze, government revenues are expected to decline and green taxes are seen as a palatable way to raise money.

Mr Darling is also predicted to raise the duty on alcohol to address public concern at binge drinking.

But economic uncertainty would stymie any big initiatives, commentators said.

Green taxes

Reports suggest that one of the most likely Budget announcements will be an additional £2,000 tax on the least fuel-efficient cars.

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There are also suggestions that supermarkets will be required to charge for disposable plastic bags if they do not voluntarily scrap them.

Such measures may not please consumers, if a survey released on Tuesday by market research firm YouGov is to be believed.

In a survey of 2,000 people, YouGov said a majority saw such green taxes as a primarily a means to boost the government's finances.

'Economy faltering'

The chancellor is expected to cut his economic growth forecast during the budget.

Mr Darling has already cut his forecast for 2008 to 2%-2.5% from the previous 2.5%-3%, but Investec Securities economist Philip Shaw expects a further reduction.

Full Budget special report Evan Davis on the chancellor Robert Peston on green taxes

Fellow economist Howard Archer, of Global Insight, agrees, saying Mr Darling will blame factors outside his control.

"Darling is likely to attribute much of the UK slowdown to a weaker global growth, tighter lending conditions influenced markedly by the US subprime mortgage crisis, and high energy, food and commodity prices," said Mr Archer.

He added that as a result, "it is unlikely that the chancellor will be prepared to enact major tax raising measures and/or public spending cuts at a time when the economy is faltering markedly".

Mr Darling is facing a Budget deficit of £38bn, and a slowing economy will make it much more difficult for him to bring the government finances back into balance.

So in the longer term, taxes may have to go up, or spending cut back, to meet the shortfall.

Binge drinking

Mr Darling is also predicted to raise the duty on alcohol to address public concern at binge drinking.

CORPORATION TAX RATES Italy 37.2% Germany 29.8% UK 28% Netherlands 25.5%

The Conservatives said last week they would raise tax on super-strength beer, cider and alcopops to tackle binge drinking if they won the next general election.

The chancellor is further expected to provide help for poor families hit by higher energy costs.

This could come in the form of reducing the difference between what energy companies charge pre-payment customers and those who pay by direct debit.

Liberal Democrat Treasury spokesman Vince Cable says Mr Darling should go further in helping homeowners, and introduce a rescue plan to help households struggling to meet their mortgage payments.

Corporation tax

Analysts are divided over whether Mr Darling will also press ahead with a 2p-a-litre rise in fuel duty.

AA president Edmund King says the Chancellor should at least delay the increase.

Mr Darling also faces a demand from business to cut corporation tax.

But dramatic tax cuts look unlikely, given economic uncertainty and strained public finances.

The Confederation of British Industry (CBI) has said that high taxes on business are damaging the UK economy.

It wants corporation tax cut from 28% to 18% by 2016 and a simpler system introduced.

However, unions say a cut in corporation tax would lead to tax hikes for "ordinary people".