Surprise tax cuts in UK budget

Britain's leader-in-waiting Gordon Brown fired a budget broadside at a resurgent opposition yesterday by making a surprise cut in income and corporate taxes months before he expects to take over as prime minister.

With his ruling Labour party trailing in the polls, the long-serving finance minister used his 11th budget to offer more money for families, pensioners, schools and company bosses from April 2008, right in time for an election expected in 2009.

Mr Brown also talked up his record of securing unbroken growth and low inflation during a decade in office, and predicted the economy would grow by as much as three per cent in 2008 and 2009.

Mr Blair has said he will quit before September and no credible challenger has yet emerged to rival Mr Brown for the leadership.

The FTSE-100 share index rose on news of the two percentage point cut in the main corporate tax rate but government bonds fell as markets took on board that Mr Brown would have to borrow £8 billion more over the next three years to pay for it all.

But Mr Brown said his budget was affordable. Education spending would rise strongly in the next three years but overall government expenditure will increase by around two per cent a year, its slowest rate in a decade. This budget, Mr Brown told parliament to loud cheers from Labour lawmakers was for "Britain's families, for fairness, and for the future."

"To reward work, to ensure working families are better off, and to make the tax system fairer, I will from next April cut the basic rate of income tax from 22 pence (in the pound) down to 20 pence. The lowest basic rate for 75 years."

To help fight climate change, the 56-year old Scot also unveiled higher taxes on gas-guzzling cars, increased duty on petrol and proposed tax breaks for home energy-saving products. But he shied away from raising levies further on airline travel.

The opposition Conservatives had proposed a corporation tax cut but Mr Brown's move stole their thunder. The income tax cuts should make the average family 200 pounds richer by 2009, according to Treasury figures.

"He has finally given us a tax cut," said opposition Conservative leader David Cameron. "He normally does that before a general election but he's in such a deep hole, he's had to do it before the leadership election."

Business groups welcomed the corporate tax cut but said Mr Brown was giving with one hand and taking with another.