Brown plans tax cuts of £3bn before election

Grodon Brown is planning tax cuts of up to £3bn in his Budget next March in an attempt to provide a vote-winning package for a general election expected in May.

Grodon Brown is planning tax cuts of up to £3bn in his Budget next March in an attempt to provide a vote-winning package for a general election expected in May.

Close allies of the Chancellor believe the forecasts of the nation's finances he announced in his draft Budget on Wednesday will prove to be "cautious estimates" and the Treasury surplus for the current financial year will turn out to be bigger than the £16.6bn he predicted. That would leave room for Mr Brown to include tax cuts in his Budget without risking his hard-won reputation for financial prudence, say his allies.

Although another 1p cut in the basic rate of income tax would cost £2bn, Mr Brown is expected to spend his election war chest on families with children. He could announce a further increase in the value of a new child tax credit that takes effect next spring, which he raised on Wednesday from £8.50 to £10 a week.

But the Institute for Fiscal Studies warned that Wednesday's £4.3bn giveaway would leave little or no room for tax cuts in March. "The public finances remain in good shape but he gave away just about as much as he could afford," said Carl Emmerson of the institute.

Mr Brown said yesterday that he would both invest in public services and bring in "targeted tax cuts where it is right for the priorities of the country".

The Chancellor denied his wide-ranging measures aimed at hauliers and motorists were a climbdown prompted by the fuel protests in September. "I didn't give in to fuel protesters," he said. "We make decisions for the whole of Britain."

He hit back at environmental groups who warned that his cut in duty on "green" unleaded petrol would do nothing to tackle global warming because it would encourage people to use their cars. He insisted the introduction of ultra-low sulphur petrol would reduce air pollution.

Downing Street admitted the Government could not guarantee the 3p cut in duty on the "green" petrol would be passed on to the motorist. But ministers believe public pressure will force the oil companies to allow the cut.

Today Tony Blair will suggest that Labour will give a higher priority to improving public services than to cutting the basic rate of income tax. The Prime Minister will outline "the choice" facing the nation on tax and spending when he addresses a chief nursing officers' conference in Brighton.

Labour is happy to fight the general election as the pro-spending party offering limited tax cuts, while the Tories will promise larger cuts in income tax.

In the Commons yesterday, Michael Portillo, the shadow Chancellor, repeatedly challenged Mr Brown over the rising burden of tax, accusing him of "massaging the figures".

Mr Portillo said the pre-Budget report showed that the tax burden has risen from 36.9 per cent of national income last year to 37.3 per cent this year. He said the increase since Labour came to power was £25bn, the equivalent of 10p on the standard rate of income tax.

But Mr Brown insisted that the tax burden would be even higher of the Tories had stayed in power. He said: "Tax and national insurance as a share of gross domestic product is 37.3 per cent in 2000-01. Under the Conservative proposals published before the election, the projected tax take was not 37.3 per cent in 2001, it was 37.6 per cent."

Michael Brown, Review, page 4, Deborah Orr, Review, page 5