By Kylie MacLellan and William Schomberg
LONDON (Reuters) - British Chancellor George Osborne offered a sweetener to pensioners on Sunday, less than two months before a national election, but promised there would be no big giveaways for voters when he sets out his final pre-vote budget.
With many opinion polls showing the governing Conservatives neck-and-neck with the opposition Labour party, Osborne will be looking for a chance to boost his party's re-election prospects at his annual budget statement on Wednesday.
While his hopes of delivering major tax cuts have been frustrated by slow progress in bringing down Britain's budget deficit, Osborne has been given some room for manoeuvre by a sharp fall in inflation that has lowered the cost of interest payments on some government bonds and welfare payments.
In a move which may help win support from older voters, Osborne said in a statement on Sunday pensioners would be given the freedom to cash in their annuities in exchange for lump sums, an extension of pension reforms announced last year.
But in an interview on BBC TV, Osborne also reiterated there would be "no giveaways, no gimmicks" in his budget.
"Everything we do in this budget has to be paid for," he said. "This country is still borrowing too much, and so we have to go on making difficult decisions."
Among other measures expected on Wednesday are tax breaks for the North Sea oil and gas industry, which is struggling to cope with the plunge in global oil prices.
Osborne may use some of his inflation savings windfall to reduce the scale of planned austerity in the next five years, potentially dampening Labour's line of attack that the Conservatives plan ideologically-driven cuts to the state.
Britain's independent budget office has said a pledge by Osborne last year to achieve a 23 billion pound surplus by 2019/20, would take public spending as a share of the economy to its lowest level in 80 years.
Asked about the 23 billion pound number on Sunday, Osborne declined to repeat his previous forecast but said, "We have set out our plans and we intend to fulfil our plans."
Labour finance spokesman Ed Balls said Osborne wanted to go "way beyond the difficult task of balancing the books.
"The difference is a big ideological plan for a surplus ... from the Tories (Conservatives) or a sensible, balanced, fair plan from Labour," he told the BBC.