Tough UK budget expected to allow for rate cuts


Britain's Chancellor of the Exchequer Gordon Brown will unveil a tough to neutral budget tomorrow to allow further interest rate cuts and "lock in" the improvement in public finances, UK reports said yesterday.

It was reported that Mr Brown would take a cautious stance, despite bulging government coffers, because of concern about underlying weakness in some revenue arrears.

Mr Brown has spent his first two years since the Labour party swept to election victory stressing "prudence" and "stability".

He is expected to hold on to his cash pile - estimated to be around £7.5 billion sterling (€8.76 billion)) - because the public finances are likely to worsen in the next couple of years as a result of economic slowdown.

Nevertheless, there is widespread speculation he will find enough money to introduce a long-awaited 10 pence starting rate of income tax, although according to reports he will delay its implementation until next year.

Britain currently has three income tax rates - 20 per cent, 23 percent and 40 per cent - which kick in at rising thresholds.

The creation of a lower tax bracket would fulfil a key manifesto pledge and be a sure vote winner.

It was reported that Treasury plans to scrap the married couples' tax allowance to pay for it had been vetoed by the Prime Minister, Mr Blair.

Mr Blair had ruled out abolishing the tax break - worth some £1.8 billion, or the cost of a 10 pence rate on the first £1,500 of taxable income - as it would undermine the government's commitment to the family.

It was also said Mr Brown would announce a controversial tax on child benefit, but delay its implementation.

It is expected that Mr Brown would stick to his prediction of 11.5 per cent growth in Britain this year. The forecast is well above the UK consensus forecast of 0.6 percent, but only slightly higher than the International Monetary Fund's 0.8 per cent prediction, made yesterday.

The Treasury said it welcomed the IMF's analysis. "The government is now addressing the fundamental structural weaknesses that have held back the British economy with a budget for enterprise, work and families," said a spokesman.

Mr Brown has firmly nailed his colours to the mast of fiscal rectitude by pledging to honour a so-called "golden rule" of borrowing only to invest over the cycle and of keeping public debt at a "sustainable" level of below 40 per cent of gross domestic product.