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Brown cuts and runs for No 10; Budget 2007 Chancellor springs tax surprise.

Byline: BY ROB MERRICK Political Correspondent

GORDON BROWN yesterday sprang a major surprise with a headline-grabbing 2p income tax cut designed to convince Labour MPs that he can be a popular prime minister.

In his 11th and almost certainly final Budget, the Chancellor cheered the Labour benches by boasting that the basic tax rate, slashed to 20p from April next year, would be the lowest for 75 years.

The move, kept for the dying seconds of his 48-minute speech for maximum effect, was seen as an attempt to shore up Mr Brown's leadership credentials, as Tony Blair prepares to quit No10 within months.

The prime minister-in-waiting has been rocked by a slide in his poll ratings and this week's embarrassment of being branded Stalinist by the Treasury's former top civil servant.

But there were signs last night that the tax cut had backfired, as it was quickly condemned as a "con" by the Conservatives who pointed to tax rises elsewhere.

Most significantly, the scrapping of the 10p tax rate on the first pounds 2,317 of taxed income would bring in almost as much revenue as the 2p cut lost.

Similarly, while Mr Brown announced that the 40p tax rate would now kick in at pounds 43,000, not pounds 38,000, he failed to mention that those gaining would pay higher National Insurance.

David Cameron, the Conservative leader, was quick to brand the package a "tax con, not a tax cut", claiming average families were paying pounds 1,300 more in tax under Labour.

He told the Chancellor: "You have finally given us a tax cut. You normally do that before a general election, but you are in such a deep hole you have had to do it before the leadership election."

Liberal Democrat leader Sir Menzies Campbell attacked "a Budget of missed opportunities", and said abolishing the 10p starting rate would mean a higher income tax bill for many.

Nevertheless, the speech was well-received by Labour MPs, who also hailed big increases in education spending through to 2011 and moves to take a further 200,000 children out of poverty.

In other key measures, child benefit will rise to pounds 20 a week by 2010 and tax-free allowances for pensioners to pounds 9,770 in 2011, pounds 10,000 for over-75s, lifting 600,000 out of paying income tax.

There will be a cut in vehicle excise duty next year from pounds 50 to pounds 35 for the least polluting cars, while the worst offenders, the so-called "Chelsea tractors", will be charged pounds 400.

But Mr Brown risked angering motorists by reintroducing above inflation fuel duty rises of 2p-alitre this year and next, although the first increase is delayed until October.

The price of beer will rise by 1p a pint from midnight Sunday, cider by 1p a litre, wine by 5p a bottle and sparkling wine by 7p. Duty on spirits will be frozen, but will rise by 11p on a packet of cigarettes.

Mr Brown won laughter for repeatedly holding up Tory policies for examination, only to shoot them down in flames.

Rejecting Conservative calls to put VAT on airline tickets, he said the measure would reduce carbon emissions by less in one year than the climate change levy achieved in just one week.

Mr Brown insisted his was a Budget for "pensioners and families with children", with the poorest workers pounds 7.10 a week better off because of increases in tax credits.

There was a pounds 400mboost for the armed forces engaged in Iraq and Afghanistan and an extra pounds 86m for the intelligence and security services in the fight against terrorism.

A cut in corporation tax from 30p to 28p, from April 2008, would give British business a rate that would be "the lowest of all the major economies". However, he raised the corporation tax rate for small firms by 2p to 22p.

Education spending will rise to pounds 74bn in 2010, compared to just pounds 29bn in 1997, to help Mr Brown meet his aim of matching spending per pupil in state schools with that in private schools.

There was also good news for people who lost their pension through company insolvency, with a near-quadrupling of the financial assistance scheme to pounds 8bn.

An estimated 125,000 pension victims would be eligible to reclaim up to 80%of the savings they lost through no fault of their own.

But campaigners warned the measures for poorer families would not be enough to get the government back on track to meet its target of halving child poverty by 2010.

And Greenpeace director John Sauven said: "The urgency of climate change requires bold measures and not timidity on cars and planes."

You have finally given us a tax cut


Chancellor Gordon Brown with the famous despatch box
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Publication:Daily Post (Liverpool, England)
Date:Mar 22, 2007
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