Gordon Brown may have to cut spending, raise taxes or ditch his hard-earned reputation for prudence, an influential think tank has predicted.

Overly optimistic Treasury revenue projections, warned the Institute for Fiscal Studies, mean that government borrowing could be nearly £10 billion adrift of targets by the next general election.

The government could also miss its target to lift more than a million children out of poverty in two years' time.

The think tank expects a substantial fall in the number of children in poor families, but a rise in incomes will lift the threshold and mean that the target is missed by 200,000 children.

Forum Response: Barnardo's

Liz Garrett, head of policy for Barnardo's, told ePolitix.com: "The government needs to make a truly significant investment to reach its own target of halving child poverty by 2010. Only 500,000 children have been taken out of poverty since Labour came into office. Nearly four million children remain in poverty in the UK - one in three of all children."A further 200,000 will be helped by an investment of £1 billion, according to the Institute of Fiscal Studies."However if disabled children and those with health needs are to be given the priority, that should be their right and not overlooked in the drive to take children out of poverty, then even higher levels of investment will be needed.

"Any initiative on the governments part to meet its own targets needs to include all children who live in poverty, especially those socially excluded by disability."

Forum Response: Business Services Association

Norman Rose, director general of the BSA, told ePolitix.com: "If the predictions of the IFS green budget are right, it would be unfortunate if the chancellor chose yet again to tax business, as he did in raising NI contributions. The economy is fragile enough at present without the prospect of higher taxation.

"However, I believe it is unlikely that a government seeking re-election in 2005 would lightly risk its chances of victory by raising taxation at such a sensitive time. The chancellor has shown himself adept in the past at finding innovative ways of raising extra revenue, and I would anticipate that he might well do so again on this occasion."

Forum Response: Institute of Directors

A spokesman for the IoD told ePolitix.com: "We are needless to say very concerned about the UK's continuing economic deterioration, it will be interesting to see how far the state of the economy is reflected in the chancellor's budget statement and also how he plans to address the black hole in the public finances."

Forum Response: British Retail Consortium

Bill Moyes, director general of the British Retail Consortium, said: "The retail industry - like other major industries - is faced by apparently endless increases in costs generated by Whitehall and Brussels.

"Increases in National Insurance, environmental taxes and the National Minimum Wage are all set to have an imminent impact. Increasingly competition in the market means the industry cannot continue to absorb increased costs while investing to provide better services and keeping prices low; something has to give.

"As the sector that has done more than any other in the last twelve months to keep the economy in reasonable shape, it is vital that our concerns are tackled in a strategic, constructive and timely way by the whole of government."