The Chancellor was today being urged not to bypass the Sussex economy in his pre- Budget report.

Matt Coward, tax director at BDO Stoy Hayward in Brighton, said the Chancellor was in a difficult position.

He said: "The Chancellor may have to raise billions in additional taxes, as growth for this year is now expected to fall some way short of his optimistic forecast of 2.5 per cent.

"He is in a Catch 22 situation. On the one hand, he needs to raise tax so spending targets can be met but, on the other, such an increase could depress an already stagnant market."

Mr Coward expects Gordon Brown to plug his spending gap by raising taxes on individuals, perhaps reviewing higher- rate tax relief on pensions or tinkering with national insurance rates and thresholds.

He said: "As a sweetener to such measures, he could consider increasing the inheritance tax threshold from £250,000 to £400,000, bringing the rate into line with recent increases in house prices in our region.

"We also expect to hear more on proposed changes to the rules governing non-domiciles which might leave some of their tax advantages intact."

Business assistance could include:

l The abolition of "tax nothings" - genuine business payments that, due to the quirks of the tax system, did not qualify for any tax relief. The situation was a perpetual issue for businesses and could distort business decisions.

l Reduction of red tape. Compliance burdens continued to haunt businesses, particularly small companies. Past attempts to review and simplify PAYE, an onerous administrative burden for growing businesses, had failed to propose any concrete measures to modernise the current system.

l Widening the scope of the research and development tax credit so that businesses developing existing technologies could take advantage of the reliefs on offer.

l Lowering the rate of corporation tax by one per cent for larger companies.