Defiant Brown to cut 1p off tax

Gordon Brown is set to go ahead with a 1p cut in income tax in the Budget this week, defying the growing clamour for more cash for the health service, to heal Britain's North-South divide.

The cut will be part of a cautious 'Budget for hard-working families'. The Chancellor is determined not to spend his massive 'war chest' - now estimated at £10 billion - on a pre-election bonanza that could ignite inflation and trigger another increase in interest rates. 'We are going to lock in the surplus,' said a senior Whitehall official.

But his insistence on courting Middle England's taxpayers is creating friction between Brown and the Prime Minister, the two of whom met at Downing Street on Friday to agree Tuesday's Budget.

After a series of blows to British industry, including the crises at Rover and Harland & Wolff, Blair is said to be nervous that the pound is too strong and the Government should be spending more on regenerating Labour heartlands. But Brown is more concerned by warnings from the International Monetary Fund and Bank of England against a spending bonanza. After last week's embarrassing admission that taxes have gone up during his Chancellorship, Brown is insisting on the 1p tax cut to mollify homeowners whose payments are about to shoot up because of the abolition of mortgage tax relief. Brown is also expected to extend the 10p tax rate.

Tax revenues have been so high during the current consumer boom that Brown would have to cut taxes by a net £3bn to escape being accused by the Tories of increasing the 'tax burden' still further.

Much of the Budget's small print is having to be decided in a last-minute rush. Privately, treasury officials complain about the difficulty of getting decisions from Brown and his tight circle of close advisers.

Brown's fear of setting off inflation is likely to bring relief to motorists. After the latest hike in world oil prices, petrol tax is unlikely to rise by more than 1p a litre, and may be frozen.

The price of a packet of cigarettes could go up by as little as 2p, with 1p on a standard size bottle of wine and 7p on spirits. Beer drinkers may escape any increase.

Families with small children are likely to benefit. Ministers were shaken last week by a survey showing Britain is still bottom of the European league for child poverty. Child benefit is to be raised by 3 per cent. Brown has also been working on a new unified tax credit for children, and has shown interest in a 'baby tax credit' which would be worth £60 a week for the first year of a child's life.

Changes to capital gains tax will please industry, and among other tax breaks there will be a cut in VAT on home renovations, as part of a policy of encouraging builders to re-use land that has already been developed instead of putting pressure on the green belt. high during the current consumer boom that Brown would have to cut taxes by a net £3bn to escape being accused by the Tories of increasing the 'tax burden' still further.

Much of the Budget's small print is having to be decided in a last-minute rush. Privately, treasury officials complain about the difficulty of getting decisions from Brown and his tight circle of close advisers.

Brown's fear of setting off inflation is likely to bring relief to motorists. After the latest hike in world oil prices, petrol tax is unlikely to rise by more than 1p a litre, and may be frozen.

The price of a packet of cigarettes could go up by as little as 2p, with 1p on a standard size bottle of wine and 7p on spirits. Beer drinkers may escape any increase.

Families with small children are likely to benefit. Ministers were shaken last week by a survey showing Britain is still bottom of the European league for child poverty. Child benefit is to be raised by 3 per cent. Brown has also been working on a new unified tax credit for children, and has shown interest in a 'baby tax credit' which would be worth £60 a week for the first year of a child's life.

Changes to capital gains tax will please industry, and among other tax breaks there will be a cut in VAT on home renovations, as part of a policy of encouraging builders to re-use land that has already been developed instead of putting pressure on the green belt.