Barry Smith, head of tax at professional service firm PricewaterhouseCoopers in the Midlands, hopes Alistair Darling uses the Budget to address the nation’s growing deficit and to modernise the tax system.

Budgets are traditionally upbeat, containing good news and messages of encouragement.

But it is hard to see how the Chancellor of the Exchequer can paint a rosy picture of the UK’s position and prospects this time around.

The best he can do is to stress that the UK’s position is in line or slightly better than some other countries.

There is no doubt that the fiscal gap is widening and PricewaterhouseCoopers latest projections are for a fiscal gap equivalent to three per cent of GDP in 2013-14, which is equivalent to around £43?billion at current values.

Despite the pessimistic economic outlook, the Chancellor can still be positive in setting out strategies to address the growing deficit and do more to modernise the tax system.

Changing the foreign profits proposals, in response to concerns already raised by corporates, could pave the way for a more internationally competitive UK business tax system.

Furthermore, setting out long term plans for the tax system to encourage renewable energy and a framework for carbon taxes would provide certainty and encourage investment.

Tax receipts for the Government always reduce in times of economic downturn and the Chancellor may be considering raising taxes significantly to compensate for this and to help balance out the growing deficit. Among the possibilities, he may choose to raise the basic rate of income tax, increase National Insurance contributions or increase VAT – we will have to wait and see.

Small and medium-sized businesses in the region will be hoping for some good news from the Budget. In particular, they may well be wishing for an extension of loss relief, which currently allows a loss to be carried back for up to three years for up to £50,000 of losses.

This temporary relief is due to expire in November 2009 but there is a strong case for making it a permanent relief or at least extending its deadline. In addition, small businesses may be wishing for some simplification of administration, by easing reporting requirements.

The Chancellor will no doubt be looking for some ways of delivering good news to support struggling businesses through the recession and he may well resort to announcing some welcome tax measures. Possible areas of interest include:

* Research and development (R&D) – Spending on R&D qualifies for a ‘super-deduction’ currently but small and medium-sized businesses may be hoping for a lower overall tax rate.

* Training costs – Investing in training is even more important during a downturn. The Chancellor could help individuals who have been made redundant by allowing income tax relief for retraining costs.

* Targeting assistance – To support and encourage investment in energy generation technology, both renewable and nuclear, the Chancellor could review the various capital allowances.

* Business rates – The limited relief announced in the pre-Budget report is helpful but many businesses still feel that the cutbacks announced in the 2007 Budget are unfair. There is plenty of scope for change here.

* Share plans – With businesses in difficulties, now may seem a strange time to encourage employees to take shares in their employer. However, businesses can better afford to give out shares than to give out cash when times are hard.

* Stamp duty – The UK’s 0.5 per cent duty on share transactions has long been out of line with other countries, like France and Germany, where there is no stamp duty. Any move to reduce or abolish stamp duty could help to restore confidence.

The 2009 Budget is an important opportunity for the Chancellor to take positive action to support businesses and individuals at a difficult time and it must not be missed.