"Alistair Darling may be the man at the dispatch box, but the main architect of this Pre-Budget Report will be John Maynard Keynes," said Jonathan Loynes at Capital Economics. "With the Government having firmly signaled its intention to support the ailing economy with a much-needed fiscal boost, the key question is just how bold it is prepared to be."

Indeed earlier this week, UK Chancellor Darling announced his intention to cut taxes on households and small businesses, a move which the Financial Times reported could bring government borrowing to £90 billion, or 6% of GDP.

"The Government will have to spend at least £15bn - around 1% of GDP - just to prevent an already planned fiscal tightening from deepening the downturn in the economy," wrote Loynes in a note to clients. "[T]o provide a meaningful boost, it may have to spend as much as £30bn."

"Some of this may be achieved by bringing forward capital spending projects. But if the Government wants to boost activity quickly, it needs to cut taxes too. Moreover, tax cuts need to be targeted at those people who will spend the extra income, not save it," he added.

Another important part of the report will be the government's outlook for the country.

"It was only in March that the Treasury was forecasting GDP growth of between 1.75% and 2.25% this year and between 2.25% and 2.75% in 2009. The only issue now is how bad will the recession prove to be (our current forecast is for a fall of 1.3% in GDP in 2009)," said David Owen at Dresdner Kleinwort. "There will have to be substantial revisions to the Treasury's forecasts."

Howard Archer at IHS Global Insight also highlighted the importance of the government credibly presenting a timetable for paying off the new debt.

"While there is a strong and justifiable case to loosen the already slack purse strings now - and the relatively low level of public debt facilitates this - it is of vital importance for the credibility of economic policy that the government gives clear indications as to how public finances will be restored to a sustainable state over the long term, and then kept there," he said.

"Stressing that the government remains committed to long-term fiscal discipline and sustainability, will not be enough," he added. "With its frequently maligned and long discredited Golden Rule now blown out of the water, the government needs to be open about the extent of the fiscal tightening that will be needed to rein in the public finances over the longer term once the economy is on a sounder footing. This includes acknowledging that the fiscal stimulus will be temporary and that tax hikes and/or tight controls on public spending cuts will be necessary further out."

Archer believes the plan will include a temporary cut in Value Added Tax, a 1p cut in the basic rate of income tax, an income tax rebate, raising the lower income tax rate threshold, cutting corporation tax and an extension and deepening of the stamp duty suspension on homes costing up to £175,000.

By Erik Kevin Franco, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Sarah Sussman, This email address is being protected from spam bots, you need Javascript enabled to view it

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