But the chancellor may be tempted to hold back some of the worst news and instead offer some feel-good headlines on give-aways to specific parts of the community, according to tax experts.
In the Budget speech in March, Alistair Darling announced a new 50% top rate of income tax, which will apply from 6 April 2010 on taxable income over £150,000.
But tax experts at Smith and Williamson predict a new rate of income tax might be considered for incomes over £100,000 per annum, moving from 40% to 42% or even 45%.
The Government is predicted to introduce a raft of measures preventing individuals and businesses from avoiding the 50% tax rate. HM Revenue and Customs (HMRC) has warned that it will crack down on higher earners intending to convert income into capital gains, which is taxed at a much lower rate. Tim Stovold, a partner at Kingston Smith, said: "We may also see specific anti-avoidance legislation directed at certain practices which HMRC has tried to target in the past, such as carried interest structures of hedge funds.
"However, what we must not forget is that these individuals are freely and internationally mobile, and a measure of this sort could encourage them to leave the country."
Currently gains on long-term capital investments are taxed at a lower rate than income. But the decision to move to a flat-rate capital gains tax system of 18% in 2008 will look small compared to an income tax top rate of 50% so CGT rate on short-term gains could be increased from its current flat rate of 18% to an individual's marginal rate of tax to make it less attractive to reclassify income.
However, The Sunday Times this week reported that Darling does not plan to increase capital gains tax from 18%.
Salary sacrifice might also come under scrutiny. Numerous employers have set up salary- sacrifice schemes whereby staff forego an element of salary in return for a tax or NI-efficient benefit such as childcare vouchers or pension contributions. With the employer paying for these directly, both the employer and employee save on NICs or tax - which cuts the Government's tax take.
But Richard Mannion, national tax partner at Smith and Williamson, predicts the Government could restrict the tax relief on these benefits for higher earners in the same way as they are already planning to restrict tax relief on pension contributions for those earning £150,000 or more. Such a move could affect those in salary-sacrifice schemes covering free lunches, childcare vouchers, car parking and cycle-to-work schemes.
The standard VAT rate is set to return to 17.5% (from its current 15%) on 1 January 2010, but tax experts predict a potential rise in VAT to 20% by 2011 - although this could push up inflation.
Another option for the Government could be to accelerate some of the NIC increases already announced in March. People earning over the relevant threshold (currently £43,875) pay 1% on all additional earnings. But this could rise to 1.5% with effect from 6 April 2011.
Similarly, the rates of NIC for high earners (over £150,000 per annum) could be ratcheted upwards.
Mannion added: "On the eve of a difficult election, the Government needs to find a chunk of extra money that doesn't upset too many voters. So we must expect tax increases and spending cuts with high earners bearing the brunt," said Richard Mannion, national tax director at Smith & Williamson, the accountancy and financial services group.
"So, we could see further increases in income tax for high earners, windfall taxes on the financial services, a rise in capital gains tax so that it narrows the gap that is developing between the top rates of tax on income and capital gains, and plenty of anti-avoidance on tax arrangements.
"We might also get a small rise in corporation tax for small companies, National Insurance could be ratcheted up to target those on very high earnings and the salary- sacrifice regime could also come under attack," continued Richard.
"This could add up to some painful tax increases, but the chancellor should recognise the fragility of the economy. No one can be sure we have reached recovery-mode and he should moderate any revenue-raising ambitions accordingly," added Tim Lyford, head of corporate tax, also at Smith & Williamson.
Check www.hrmagazine.co.uk tomorrow afternoon for all the pre-Budget report news as it breaks.
