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* Aims for balanced budget by 2016/17 *
* Royal Mail pension assets to help 2012/13 deficit *
* Growth may nudge higher, Queen's Jubilee to weigh *
British government borrowing next year is likely to fall below 100 bln pounds for the first time since 2008/9, and the growth outlook for 2012 could be nudged higher in Wednesday's budget after a better-than-expected start to the year.
Economists expect the budget, underpinned by forecasts from the independent Office for Budget Responsibility, will reveal a broadly unchanged fiscal and economic picture, leaving finance minister George Osborne with little room for giveaways.
Osborne, attempting to slash a large budget deficit within just a few years, has said the budget will be fiscally neutral, choosing to bank any improvement in the books to reassure markets and protect Britain's triple-A credit rating.
The government's recent decision to take on the state-owned Royal Mail pension scheme will have a significantly beneficial impact on borrowing in 2012/13 – but that improvement will not follow through to forthcoming years, meaning the budget deficit could run higher again in 2013/14.
The April 1 transfer of the Royal Mail pension will result in an asset boost to the deficit of 28 bln pounds in 2012/13, and will also probably lower gilt issuance for that year.
City analysts believe the OBR's underlying 2012/13 public sector net borrowing estimate could hold in line with November's forecast for 120 bln pounds, given little change in the economic outlook.
Factoring in the Royal Mail transfer could therefore bring the borrowing forecast down to around 92 bln pounds in 2012/13 – the first time the budget deficit has dropped below 100 bln pounds since the global financial crisis of 2008/9.
SLOW RECOVERY
On the growth front, the economy has stabilised from a contraction in the final quarter of last year, and economists believe it got off to a healthier start in the first three months of this year.
The OBR's forecasts are likely to reflect that, showing growth of perhaps as much as 0.3% in the first quarter, but Queen Elizabeth's Jubilee celebrations – with the associated public holiday – could dampen activity and even result in stagnation in the second quarter.
The latter part of the year is expected to see growth in line with the OBR's forecast in November, signalling a slow but steady recovery from the financial crisis.
The overall forecast for the year is likely to come in broadly in line with November's estimate of 0.7% but could be revised slightly higher to around 0.8% to reflect a better start to the year than had been expected.
The OBR's forecasts will therefore show Britain will avoid a return to technical recession, defined as a contraction in the economy for two or more quarters in a row.
PRIVATISE ROADS
Britain's cash-strapped government could lease chunks of its road network to the private sector as Prime Minister David Cameron seeks to improve the country's infrastructure to stop it falling further behind its competitors.
The move to seek help from sovereign wealth funds and private investors came after news Cameron had only managed to secure 2 bln pounds from pension funds for new projects by 2013 – far short of a 20 bln pound target.
Cameron said his Conservative-Liberal Democrat coalition government would look at introducing more tolling on new roads.
"They are slightly more risky, compared to say a regulated utility or contracted power station – they are more economically sensitive," said Surinder Toor, European head of infrastructure at JPMorgan Asset Management.
"But this is core infrastructure, and we would be interested in schemes involving the existing road networks."
The changes to how Britain's roads are managed could mimic those made to water supply, where private sector capital funds independently regulated firms.
A government investigation into the idea will report in the autumn after examining several options, including the possibility of using road taxes to help fund private investment.
Last November, Britain announced plans to invest 30 bln pounds in major construction projects over the next few years, with two-thirds of the money set to come from pension funds.
The government is pushing through austerity measures to reduce a record peacetime public deficit, and Cameron admitted there was not enough money for further widescale, publicly funded road improvements.
The Conservative party, which Cameron leads, privatised the country's rail network in the 1990s, and has advocated a greater role for the private sector in the National Health Service as well as in schools.
BUDGET TO HELP POOR
Osborne said he would use his 2012 budget to help those at the bottom of the earnings ladder, hinting he could go further in lifting more people out of paying income tax.
"My priority is to help low and middle earners. That is where the bulk of the effort in the budget is going to be," he said on BBC television. "We want to see real and substantial progress on lifting low income people out of tax."
Under pressure to revive a stagnant economy with rising unemployment and a squeeze on household incomes, he is expected to present a neutral budget on Wednesday, sticking to a tough austerity plan which critics say has stalled Britain's recovery from the global financial crisis.
Any effort to accelerate progress in raising the income tax threshold towards or above a 10,000 pound goal agreed between Conservatives and Liberal Democrats could allow Osborne to remove a 50% income tax rate on high earners.
TAX CRACKDOWN
Osborne, singling out a tax paid on house purchases, said he would launch a crackdown on tax avoidance – an area often cited by governments for savings but treated with scepticism by economists.
"People have had their warning – they have got to pay stamp duty on the homes they live in," he said. "And we are going to deal with that in a very aggressive way."
With three years still to go before the next election – time for the economy to improve before voters have their say – Osborne's team have calculated they do not need to panic yet or abandon their austerity plan.
Headwinds remain – such as high oil prices and problems in the euro zone – threatening Britain's economy and, possibly, Osborne's strategy.
The government will extend store trading hours on Sundays during the 2012 Olympics in an effort to capitalise on a larger than usual influx of tourists over the summer, hoping to give the economy a further nudge in the right direction.
