Matt Coward has been looking at the ways Gordon Brown will be collecting and distributing the nation's taxes in his seventh budget.

He is the second longest-serving Chancellor since the Second World War and, if he holds on for another four months, he will beat Nigel Lawson's record.

Mr Coward said: "This Budget is taking place in what are probably the most challenging set of economic circumstances he's had to face so far. A number of factors have come together to make some of the assumptions and predictions he made last year look a bit optimistic.

"However, I think we will see a budget of relatively few surprises as so much has already been done and the economic situation does not permit further tinkering.

"Four strands have come together in advance of this year's Budget. Firstly, corporate and personal tax receipts have been lower than expected and, secondly, so has economic growth.

"Thirdly, the falling value of the stock market is also relevant because a number of his assumptions were based on the market being at a certain level and because it's not.

"This has implications for stamp duty, capital gains tax receipts and so on.

"One consultancy has estimated that if the stock market falls since last November are sustained that leaves Mr Brown with a £2 billion gap to plug.

"Fourthly, the other major problem facing Mr Brown is the cost of the war against Iraq. The immediate cost is £3 billion but it has started a more subtle effect because many businesses are putting transactions on hold because of increased economic uncertainty."

Mr Coward predicts tomorrow's Budget will be a mildly tax raising one to raise between £2 billion and £4 billion but said it was highly unlikely that a war tax would be introduced.

He said: "Of course, even before he stands up we already know taxes have risen by £8 billion as of April 6 because of national insurance increases for employees, employers and the self-employed.

"For most people, apart from pensioners, personal allowances have been frozen."

He does not expect income tax to be increased because that would be contrary to Labour's manifesto and he thinks further national insurance increases unlikely, although he expects Mr Brown to leave the option open to increase it in 2004/2005.

He said Mr Brown might also harmonise the income tax and national insurance thresholds, which could raise an additional £750 million.

"The changes are going to be fairly minor compared to last year. He will make a great play of encouraging environmentally-friendly transport and technology, which means further bad news for company car drivers with prestigious cars or cars that aren't fuel efficient.

"There should be no significant moves on VAT and indirect tax although, again, he might introduce some environmental taxes.

"In Ireland they've had great success with a tax on plastic bags and Mr Brown might introduce something like this that raises revenue and benefits the environment."

Mr Coward expects modest increases in duty on alcohol and cigarettes. There may also be a rise in stamp duty on more expensive properties.

He said Sussex businesses should not expect any significant initiatives, such as the recently-introduced research and development tax break.

"He will stress the money he will collect is for increased investment in public services and to pay for schemes such as the child tax credit that has just come online.

"He'll let increased Government borrowing take up the slack at the moment and hope the economy will recover next year and the year after so that as a general election is on the horizon he may be able to give something back."

Tuesday April 8 2003