Brown's surprise tax cut delights Labour MPs

British budgetBritish chancellor Gordon Brown has set the scene for his planned premiership with a surprise 2 per cent cut in the basic rate of income tax.

He delivered his flourish at the end of his 11th and almost certainly last budget statement in the House of Commons yesterday, provoking huge roars of approval from Labour MPs while plainly taking the Conservative frontbench by surprise.

Tory leader David Cameron recovered quickly - charging that the introduction of measures usually reserved for a general election suggested Mr Brown was actually "in a deep hole" over the Labour leadership race. Experts, meanwhile, concluded that Mr Brown's radical shake-up of the tax system - he also scrapped the 10 per cent lower rate and cut corporation tax from 30 per cent to 28 per cent - would leave the overall tax-take basically unchanged.

However, that did not stop speculation building in some Westminster circles last night that Labour's presumed prime-minister-in-waiting might be setting the stage for a snap general election and a bid for his own mandate early next year.

And there seemed little doubt that the delighted reaction of Labour MPs to the headline tax cut would prove a further disincentive to any senior Blairite minister tempted to challenge Mr Brown for the leadership when Mr Blair finally steps down.

With most of his big spending plans expected in the Comprehensive Spending Review in early summer, Liberal Democrat leader Sir Menzies Campbell also saw this as "a wait-and-see Budget from a wait-for-me prime minister". At the same time he accused Mr Brown of inviting the poor to subsidise the rich by axing the lower rate and cutting the base rate of tax.

While on the face of it Mr Brown's plan was a welcome Liberal Democrat proposal, Sir Menzies said, in reality "we are asking the poor to subsidise the rich".

Mr Cameron claimed the chancellor, by cutting the basic rate of tax, had conceded the Conservative argument that it was possible "to share the proceeds of growth" between public spending and tax cuts. Having plainly failed to anticipate Mr Brown's big move, Mr Cameron countered that this was the chancellor who had cut one tax while raising 99 others.

Ahead of a tight spending squeeze and a further predicted rise in interest rates, Mr Cameron accused Mr Brown of wasting billions on public services with little to show for it, proclaiming a bonanza in health service investment, for example, while nurses were being sacked.

Having presided for 10 years at the treasury, Mr Cameron suggested this was the chancellor's problem: "He can't be the change the country needs."

Proclaiming this a budget "for families" and for the future, Mr Brown said yesterday's measures would lift another 200,000 children out of poverty, boost savings and help pensioners and young people seeking a first place on the property ladder through new shared equity schemes.

In line with previous statements, there was more money for intelligence and counter-terrorism activity and an extra £400 million for the armed forces this year alone.

Mr Brown again froze duty on spirits while putting a pint of beer up a penny and 11p on a packet of cigarettes.

With the political battle intensifying on green issues, Mr Brown announced a cut in road tax for the least polluting cars and a rise in tax on "gas guzzlers". At the same time, he joked it gave him "no pleasure" to reject Conservative proposals for VAT to be added to airline tickets, suggesting the plan would hit families but not businesses.