Gordon's 'vote for me' budget

CHRIS FISHER, EDP Political Editor Chancellor Gordon Brown wooed the voters of Middle England with a surprise 2p cut in the basic rate of income tax in his eleventh, and almost certainly last, budget.

CHRIS FISHER, EDP Political Editor

Chancellor Gordon Brown wooed the voters of Middle England with a surprise 2p cut in the basic rate of income tax in his eleventh, and almost certainly last, budget.

The move, which instantly raised the spirits of Labour backbenchers in the Commons, was designed to improve his credentials as the prime minister-in-waiting and to regain support for Labour before a general election expected in 2009.

The cut in the basic income tax rate to 20p (from 22p) will not kick in until April of next year, and could produce dividends for Labour in an election 12 months later.

But opposition parties were quick to emphasise that the chancellor was really giving money with one hand and removing it from pockets and purses with the other - and that it was an exercise in tax rebranding rather than cutting.

The £8bn cost to the Exchequer in 2008-09 of the basic rate cut will be met almost entirely by a £7.3bn gain from the abolition - also in April 2008 - of the 10p starter rate of income tax.

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Mr Brown himself described the budget - which cut corporation tax but sharply increased vehicle excise duty on the most polluting cars - as “broadly neutral” for the public finances.

That means losers as well as winners, and much could depend in the chancellor's imminent premiership, and the subsequent general election, on the effectiveness of his tax targeting.

The government claimed that by April 2009 - possibly very close to a general election - the budget's personal tax and benefit measures will make families with children £200 a year better off on average, and that the poorest fifth of the population will on average gain £350 a year.

Child benefit will rise to £20 a week by 2010. And “with children's credits offsetting income tax liabilities”, said Mr Brown, by April 2009 a family with two children will not become liable for income tax until earning £24,250 a year.

The Tories countered that it was a “tax con not a tax cut”, and that the overall impact of income tax/national insurance changes would be a cost to working families of £340m. And Liberal Democrat leader Sir Menzies Campbell stressed that the income tax changes would mean a higher tax bill for anyone earning less than about £15,000. “The 2p cut in the basic rate is welcome, but let us be clear this is an income tax cut for the wealthy dressed up as a tax cut for the poor”, he said.

But the independent, right-of-centre Taxpayers' Allowance said that “most taxpayers can expect to be better off”.

In other measures setting the stage for his expected takeover at No 10 when Tony Blair steps down, Mr Brown said that 600,000 pensioners would be taken out of income tax altogether, and he announced an increase in assistance from £2bn to £8bn for people who have lost their work pension when their employer became insolvent.

He also gave a £400m boost for the Armed Forces engaged in operations in Iraq and Afghanistan, and promised an extra £86m for the intelligence and security services in the fight against terrorism. These measures were coupled with a £36bn asset sell-off - including the student loan book - and a £26bn-a-year Whitehall efficiency drive to release money for frontline public services. Resources for improving those services would continue to grow at a 4/4.5pc yearly rate, Mr Brown said.

Help for business was provided with a cut next month in mainstream corporation tax from 30p to 28p, and the chancellor said the new rate would be “the lowest of all the major economies”.

Mr Brown made only one acknowledgement of the accusation against him of “Stalinist ruthlessness” by former Cabinet Secretary Lord Turnbull, joking that he welcomed the “forthright advice” he received from civil servants - “or should I say comrades”.

But Tory leader David Cameron seized on the charge. Responding to Labour cheers for Mr Brown, he commented: “It's a bit like Stalin. They are cheering him on now; he'll wipe them out later.”

Mr Brown appeared to have been efficient, if not ruthless, in stealing Tory ideas. In his income tax and corporation tax changes and in his extra help for people whose pensions were destroyed by company collapses, he took steps that might have made in a first budget by shadow chancellor George Osborne.

He was scathing, however, about Conservative plans for VAT on airline tickets and for the reintroduction of the married couples incomes tax allowance.

His own moves to help the environment included confirmation that road tax for the most polluting cars, such as 4x4's, will increase to £400 next year. But he deferred this year's annual 2p a litre fuel duty increase by six months to October.

For drinkers, he announced that from midnight on Sunday, beer will rise by 1p a pint, cider by 1p a litre, wine by 5p a bottle and sparkling wine by 7p. But, for the tenth budget in a row, he froze duty on spirits. Duty on a packet of 20 cigarettes was raised by 11p from 6pm on Wednesday.

On inheritance tax, Mr Brown said the allowance would rise from £285,000 to £350,000 in 2010 - ensuring, he claimed, that 94pc of estates will not pay it.

His inheritance of 10 Downing Street seemed to have been shored up by a cleverly crafted budget which may persuade worried Labour MPs that he can quickly eat into the Tories' poll lead and deliver his party a fourth consecutive election victory.