A year ago Gordon Brown was obliged to deliver a Pre-Budget Report that he would have been quite content to cancel. He was forced to concede that his prediction for economic growth had proved excessively optimistic. This year he will approach the House of Commons in much better spirits. First, because if he has made a mistake in his forecast for 2006 it has been to underestimate the level of growth. Secondly, by this time next year he is likely to be prime minister.

Mr Brown is a formidable parliamentary performer who will doubtless extol a stronger economy and exploit the flexibility he may have in the public finances to make some popular moves. There are, though, audiences that are more sophisticated than Labour MPs, which will appreciate that he should not congratulate himself too loudly. While it is advantageous for the economy to be expanding at a more robust rate, by international standards Britain is not exceptional. Most estimates suggest that Germany will fare better than the United Kingdom in 2007. The Chancellor has benefited also from an influx of financial activity from New York financial markets to London. He cannot be certain that this is a permanent shift.

There are also warning signs contained within the unemployment data. That the jobless total should be rising when the economy is growing at or above its trend rate is not encouraging. This is partly because the number of people seeking work has increased (not least because of immigration from Central and Eastern Europe). There is also evidence that changes in employment law have left companies more cautious about taking on extra labour. Mr Brown should be worried that it is the sort of people who need the economic protection of full-time employment who may be left on the sidelines as a result of additional employment “rights” enjoyed by others.

The Chancellor should, therefore, use what will be his last Pre-Budget Report to show that he understands that a change in direction and emphasis is required. He should acknowledge that a cut in personal taxation, especially for the lower middle class, would be welcome (it was bizarre that David Cameron referred to such a strategy in a television interview yesterday as “extreme”) and that there is room for a similar reduction in the burden on the corporate sector. He should also note that his seemingly annual announcements on cutting back regulation have not produced the results expected of them. Small and medium-sized enterprises, in particular, while relieved at the relative economic stability of the past nine years, remain to be entirely convinced that the Treasury appreciates truly the costs that red tape imposes on them.

Politics as well as economics dictates that this will be a “green” financial statement. There is nothing wrong with that. It is in the interests of the business community as much as anyone else that energy resources are managed more efficiently. While the more apocalyptic pronouncements of environmentalists should be ignored, there is a strong case for allowing the planet the benefit of the doubt on climate change while being realistic that action has to be international in character, and thus command an international consensus, to be effective. Companies should, though, be offered incentives and inducements to improve, rather than sanctions and sermons.