Jeremy Hunt has enough flexibility in his Budget to cut the planned rise in corporation tax and increase public investment, including pay rises for state sector workers, according to a think tank.

The National Institute of Economic and Social Research (NIESR) says the Chancellor heads into next week’s statement with a combination of higher revenue and lower government spending, together with a more favourable outlook for GDP and interest rates.

Corporation tax is due to rise from 19% to 25% for larger companies at the beginning of the new tax year in one of the biggest reversals of tax policy in recent times.

“Lower effective corporation tax and increased public investment are both growth-enhancing,” says the NIESR.

“The Chancellor should allow public sector wages to rise to catch up with the private sector, given private-sector wages have been rising much faster than public sector wages of late.”

On the cost of energy, Professor Adrian Pabst, deputy director for public policy, said: “The government needs to provide more targeted support for households struggling with their energy bills while incentivising lower energy demand.

“Rather than the current approach of a universal subsidy that disproportionately helps higher income households that have both sufficient income and savings to absorb the energy price shock, a targeted system – combining an opt-in Social Tariff system with a Variable Price Cap, as we are proposing – would mean that the government can provide more support to those who need it most.

“Without targeted policy interventions, the poorest will slide into ever-greater destitution and bottom half of all UK households will see a further squeeze on their living standards ”.

Jeremy Hunt will present the Budget on 15 March.