Osborne likely to use fiscal surplus to deliver £10bn enterprise boost

GEORGE Osborne will have £10 billion of "wriggle room" for growth-boosting initiatives such as Enterprise Zones (EZ) and research and development (R&D) tax credits in this week's Budget, economists have calculated.

Figures to be published the day before Wednesday's Budget will confirm the Chancellor is on course to exceed targets for reducing public-sector debt in the current fiscal year, which ends on 31 March.

Although this week's Budget will still be tight, given the challenges ahead for the public purse, economists say Osborne will have some room for manoeuvre when he unveils his "Budget for growth".

According to Michael Saunders, economist at Citigroup Global Markets, the public-sector deficit at the end of the March is expected to be "about 10bn" lower than previously forecast by the Office for Budget Responsibility.

IHS Global Insight economist Howard Archer also expects public-sector net borrowing to stand at around 139bn by the end of March, below previous forecasts of 149bn.

"On the face of it, this gives the Chancellor a little wriggle room in his 23 March, Budget for 2011/12," he said.

The coalition government has already announced that it will unveil a Budget for growth after last year's Emergency Budget but economists are warning businesses not to expect too many giveaways and the Chancellor is more likely to appease the private sector by simplifying taxes and reducing bureaucracy.

Tomorrow the Ernst & Young Item Club group of economists will warn the Chancellor not to get too carried away with the windfall he will receive from this year's better-than-expected performance on reducing borrowings.

The latest inflation figures, to be published on Tuesday, will highlight how precarious the economy's position remains, with the cost of living thought to have hit a 28-month high of 4.3 per cent in February.

Russell Hills, head of tax at KPMG in Scotland, said: "It's going to be a hard balancing act for the Chancellor who will have to remain on course to reform the tax system to encourage businesses to come to Britain while still managing to balance the books."

The government has signalled it will resurrect ten EZs to boost growth in certain areas struggling to attract businesses and jobs. A number of areas in Scotland are expected to apply for EZ status, including Moray following the closure of RAF Kinloss. Osborne is also expected to raise the R&D tax-credit scheme for small firms from 170 per cent to 200 per cent which, according to Grant Thornton in Scotland, will deliver a 4.4m saving for the country's 625 Scottish life science SMEs.