With the next election set for May 2015, Stephen Herring, senior tax partner at BDO expects the Chancellor to hold back on major announcements in tomorrow's Budget and focus on continuing to clamp down on the deficit.

While Herring is keen to see measures to stimulate the economy and reduce the tax burden, he stresses the need for the Chancellor to balance the Red Book above all else. 'With the downgrading, he will just make sure that the Red Book balances. The total impact of the policy discussions will have to make sure it is a positive not a negative number. We wouldn't want to go below the Moody's AA1, heaven forbid, which we now share with France.

'The Chancellor needs to ensure that the measures don't produce a net negative stimulus. Last year the negative figure was £1.9bn - they will make sure that that final line is all positive - that is what the rating agencies are looking at.

'There could be a bargain between the Lib Dems liking of property taxes with the Conservative wish to cut the top tax rate from 45% to 40%.

'There may well be a property tax in exchange for a change in overall taxes, such as a cut in the capital gains tax (CGT) rate from 28% to 20%. 'Businesses are reluctant to sell assets that are pregnant with gain so a reduction in CGT could stimulate the economy. When Alastair Darling reduced the taper (on CGT), I don't think he realised that it was so generous putting it down to 18%.'With the restrictive financial environment, there is not much room for manoeuvre. 'There won't be any unfunded tax cuts. The bottom line for the coalition is reducing the fiscal deficit and I suspect that is the starting point of the Budget.

Another concern is the high marginal tax rate. 'One of the biggest flaws in the system is personal tax. They need to look at the £30,000 to £60,000 group. There's a lot of marginal voters in these groups who don't think they should be paying 40% tax. The Treasury team are conscious of this, but if you need to find some funds to finance this, it is pretty hard to find. There might be something around pension relief at the higher rate.'

After the disastrous March 2012 budget, he stresses that the government needs to avoid making poor decisions this time. 'They need to avoid own goals. If this was repeated, the Chancellor could lose his job, particularly over relatively minor things that play badly.'

For the business community, Herring is calling for some innovative thinking on tax, 'not for the multinationals with £100m to £500m turnover, but particularly for smaller family businesses which haven't got much out of reforms like Patent Box and such like. The Chancellor should allow these sorts of businesses to avoid corporation tax by paying a minimum level of dividends. For example, he could extend the REITS (Real Estate Investment Trust) model. There is no reason in principle that it couldn't work. An alternative idea is to follow the US, where companies can elect to be treated as a partnership for tax purposes'.

While Herring is not expecting any major announcements, his wild card is a possible targeted cut in VAT. 'I think there is an outside bet that they could look to cut VAT in the hospitality sector - most EU countries have a lower hospitality rate. It might just be a spur to extra tourism. A targeted VAT reduction might play well with the Lib Dems on the back benches.'