British budget expected to assist the low paid

The British Chancellor of the Exchequer, Mr Gordon Brown, will today unveil his third budget, amid expectations that he will move towards the introduction of a 10p starting rate of tax, perhaps setting a date for its introduction. There has been intense speculation that an announcement on Labour's election pledge to help the low paid would form the centrepiece of his statement.

Mr Brown has promised a budget for "enterprise, families and employment" and progress towards the 10p tax band is widely expected to be one of the key measures to boost low income families and "make work pay".

More contentious, however, could be any move finally to abolish the married couples allowance, which costs the Treasury £1.5 billion-a-year - in order to better target resources at the poor.

The budget comes against a backdrop of figures showing British manufacturing output increased in January for the first time in six months, raising hopes that the sector may emerge from recession and the economic slowdown will be short-lived.

The Office for National Statistics said yesterday that manufacturers lifted production by a seasonally adjusted 0.1 per cent in January from the previous month.

The unexpected increase provides Mr Brown with fresh ammunition to deflect criticism from gloomy economists who say his growth forecasts are excessively optimistic. Mr Brown is unlikely to drastically alter his prediction of a "soft landing" when he delivers his budget statement in the House of Commons.

The National Institute of Economic and Social Research yesterday supported the view that the UK would avoid recession. The overall picture was flat.

Total industrial production fell more steeply than expected in January, down by 0.5 per cent from December, the ONS said. But most of the decline was accounted for by the energy and utilities sectors, where output tends to be erratic. The modest rebound in manufacturing - output fell 0.6 per cent in December 1998 - offered the first hard evidence of a possible recovery hinted at in recent surveys.

In the three months to the end of January, manufacturing output fell 1.0 per cent from the previous quarterly period. Mr David Mackie, of JP Morgan, said a widely anticipated rundown in inventories and a decline in capital spending could depress production further.

Manufacturers' profit margins are still being squeezed, with factory gate prices falling again in February. But the rate of decline has slowed.

The Chancellor's budget will most explicitly shift resources towards the low paid. It will set a date for the long-awaited introduction of a starting rate of income tax of 10p in the pound, compared with the present 20p.

This is intended to complement the working families tax credit - to be introduced in April 2000 - and the planned national minimum wage in providing a significant boost to the income of the low paid.

The combined measures should mean no one earning the minimum wage of £3.60 sterling an hour should pay income tax.