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2p tax cut is Brown's surprise power play.

Byline: By William Green Political Editor

Gordon Brown sprung a final Budget surprise with a 2p cut in basic income tax as he yesterday set the stage to become Prime Minister.

The Chancellor said the basic income tax rate would fall from 22p to 20p in the pound from April next year ( as he sought to put the environment, education, health, helping families and business at the centre of his imminent premiership.

A cut in corporation tax from 30p down to 28p from April next year was welcomed by North-East business chiefs, although they expressed concern that raising duties for small firms to tackle evasion could disrupt development of a more entrepreneurial culture.

Road tax for the most polluting cars will increase to pounds 400 next year as Mr Brown sought to outflank Tory leader David Cameron on fighting climate change. But the annual 2p a litre fuel duty increase was delayed by six months.

An additional pounds 14bn will go on schools ( rising from pounds 60bn to pounds 74bn by 2010 ( while child benefit will increase.

Mr Brown also burnished his Prime Ministerial credentials with a pounds 400m boost for the armed forces engaged in operations in Iraq and Afghanistan. And he promised an extra pounds 86m for the intelligence and security services in the fight against terrorism in what is likely to have been his last Budget before taking over from Tony Blair later this year. Some 600,000 pensioners would also taken out of tax altogether, according to the Budget.

Mr Brown underlined his reputation for prudence by unveiling a pounds 26bn-a-year Whitehall efficiency drive to release cash for frontline public services and a pounds 36bn asset sell-off ( including student loans.

But beer will rise by 1p a pint, cider by 1p a litre, wine by 5p a bottle and sparkling wine by 7p from midnight on Sunday ( although duty on spirits was frozen. A packet of 20 cigarettes will cost 11p more, in line with inflation, although VAT on nicotine replacement products will be cut to 5% for a year.

But last night the Chancellor was accused of handing out money with one hand and taking with the other ( with the cut in basic income tax accompanied by the abolition of the lowest 10p income tax rate from 2009.

"It is a huge give-away and a huge take-away," said Carl Emmerson, from the respected Institute for Fiscal Studies. He also said one in five families across the income spectrum could lose out because of the income tax changes, though some would gain.

Berwick MP Alan Beith said the Budget was "full of hidden bad news" for many Northern families and pensioners, with income tax on low earnings doubled from next year while the discredited council tax was staying.

"Schools in Northumberland are still not guaranteed funds for either rebuilding or for pupils, which other areas will get. Next to nothing has been done to switch to green taxes," he said.

But Blaydon MP Dave Anderson said: "It is a good Budget for the people of the North-East and Britain. It is the start of putting a very clear dividing line between ourselves and the Tories."

Tyneside MP Nick Brown said the Chancellor's "very strong" performance had gone down well in the Parliamentary Labour Party.

Tory leader David Cameron accused the Chancellor of wasting money on an industrial scale and said average families would be paying pounds 1,300 more. He also claimed income tax was only cut because Mr Brown was in "such a deep hole" before the Labour leadership election.


* Green homeowners will take cheer from news that zero-carbon homes will be exempt from stamp duty up to 2012 ( as long as they cost less than pounds 500,000.

* Pension victims who saw their savings wiped out as a result of company insolvency may now be given a lifeline following the announcement that a lifeboat scheme would be expanded by almost pounds 6bn.

* Annual savers have been encouraged to set aside more through tax-free ISAs, with the annual limit set to increase in 2008.

* Poor families received some comfort. Gordon Brown announced that extra cash would lift more than 200,000 children out of poverty.

* Workers received some good news in a surprise announcement that the basic rate of income tax will fall by 2p in the pound.

* People with estates heading towards inheritance tax will see the death duty threshold rise from pounds 285,000 to pounds 350,000 by 2010.


* Those entering employment for the first time have a good claim for featuring at the top of the losers' list. The 10p income tax rate will be scrapped, in effect doubling the starting rate.

* Smokers ( ahead of the forthcoming ban on smoking in public places ( saw the price of a packet of cigarettes rise by 11p. There was welcome news to those trying to kick the habit with VAT on nicotine replacement products dropping from 17.5% to 5% in July.

* Gas-guzzlers will see the cost of vehicle excise duty on the most polluting vehicles rise from pounds 210 to pounds 300, with a further hike in 2008.

* Homebuyers were disappointed by a decision not to change stamp duty thresholds. Rising property values will see an increasing number liable to pay up.

* Small business owners came out worse from changes in the tax system that will see the amount they are charged upped from 20p in the pound to 23p in 2009.
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Copyright 2007 Gale, Cengage Learning. All rights reserved.

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Publication:The Journal (Newcastle, England)
Date:Mar 22, 2007
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