LONDON (AFP) –
The government will make a budget statement on Wednesday to help fix public finances and lift its popularity before next year's election, amid reports of a windfall tax on bankers' bonuses.

Chancellor of the Exchequer Alistair Darling unveils his latest taxation and spending plans in the pre-budget report -- a curtain-raiser to the main budget in March or April -- before parliament at 1230 GMT.

Reports suggest Darling will clobber bankers amid deep public anger over the return of big bonuses in a sector that was bailed out by the taxpayer -- and blamed for the global financial crisis and subsequent worldwide recession.

Business Secretary Peter Mandelson, speaking on GMTV, said early on Wednesday that Chancellor of the Exchequer Darling would deliver a "strong message" to the banking sector on bonuses.

"We are seeing, in some respects, a return to the short-term bonus culture that got us into so much trouble in the past," Mandelson said.

"Therefore, I think it is reasonable for the Chancellor to deliver a message to the banks."

Britain is the last major world power in recession, with unemployment fast approaching 2.5 million people and the economy shrinking for the past six quarters.

Prime Minister Gordon Brown, tipped to lose next year's election to the Conservatives, had outlined plans on Monday to help achieve his aim of halving the public deficit over the next four years.

Brown said he would seek to axe 3.0 billion pounds from government spending in new efficiency savings, and would also crack down on excessive public sector pay.

Mandelson, who is effectively Brown's deputy, added Wednesday that Darling would seek a path to a sustainable recovery -- but admitted that there would be painful measures.

"There will be belt-tightening, and there will be down-payments on reductions in public spending in coming years, so there will be some pain," he told GMTV.

"But it is not going to be destructive of the economy and the recovery that we have to sustain; after all, it is economic growth that we need most of all, to keep people in their jobs and their homes.

"But also to give us the means to pay down that deficit, to rebalance our public finances in the coming years, not doing so in a way that slams the brakes on and derails the recovery."

Darling is also expected to slash his growth forecasts for the economy, which is stuck in its longest recession since records began in 1955.

The Financial Times reported on Wednesday that he will announce average spending cuts of 14 percent over three years, although not until 2011, with "frontline services" of schools, hospitals and the police spared the axe.

Darling is locked in a balancing act, trying to show voters he can protect essential services from cuts ahead of the election, and slash the deficit to please the markets, the Guardian newspaper added.

The pre-budget is widely predicted to show that public debt will exceed the official target of 175 billion pounds in the current financial year.

The public finances have buckled under the weight of huge bailouts of troubled banks and a vicious recession that has slashed tax revenues.

Concern is meanwhile growing that Britain could face the embarrassment of a credit rating downgrade due to the debt mountain.

"The focus of the budget will have to be on how the public finances are going to be reined in over an extended period," said IHS Global Insight economist Howard Archer.

"Failure to do so will intensify concerns over the creditworthiness of the UK."

Ratings agency Fitch recently warned that Britain was the country most at risk of losing its top-level AAA credit assessment owing to the state of its public finances.

And on Tuesday, Moody's indicated that Britain and the United States needed to take action to protect their AAA ratings.