Brown eyes the lottery jackpot

Early Budget will shake up welfare

Gordon Brown, the Chancellor, is preparing to put the squeeze on profits from the National Lottery and give himself scope for some of the most radical welfare reforms in 50 years.

Mr Brown was taking time off at the Spurs match in north London yesterday with Alan Sugar, the club chairman and one of Labour's big business backers, but is preparing to match the radical zeal of the Government's first 10 days with a far-reaching Budget which could be brought forward to 10 June.

The cornerstone of the package will be a pounds 5bn windfall profits tax on the privatised utilities, possibly including BT, to fulfil Labour's election manifesto commitment to get 250,000 under 25-year-olds off the dole and into jobs or training schemes.

Camelot will escape the windfall profits tax, but Mr Brown is expected to seek negotiations with the company to allow more of its pounds 1m-a-week profits to go towards good causes. One senior source said: "There is a contract which we cannot break unilaterally. But we can make it worth their while."

The writing will be put on the wall for Camelot this week in the Queen's Speech with a bill to transfer the lottery to a non-profit-making operator from 2001, when Camelot's contract runs out.

There were clear signals yesterday that Mr Brown will go further than the welfare-to-work package promised during the general election by seeking to close the gap between rich and poor, possibly by making progress towards his target of lower rate of income tax of 10p in the pound.

Peter Mandelson, Minister without portfolio, said the Budget would contain "the most significant welfare changes that we've seen in our country for 50 years". Any young person claiming benefit will face four options: a pounds 60 a week subsidy to an employer, a top-up payment for taking up voluntary work or joining an environmental task force, and full-time education or training.

An announcement that the European Commission will accept the VAT move despite its potential conflict with EU rules is likely after today's meeting of finance ministers in Brussels.

Tony Blair's reforming agenda will be stepped up today by Robin Cook, the Foreign Secretary, with a mission statement informing British diplomats overseas that Britain will play a more positive role in Europe, and give greater priority to human rights. It will foreshadow moves to end the export of landmines.

The Queen's speech will contain measures to incorporate the European Convention on Human Rights into UK law, and a total ban on the private ownership of all handguns, including .22 guns, which were expected to be exempt.

The Chancellor is considering including changes to capital gains tax and corporation tax to encourage more long-term investment and share ownership. Changes are also expected on dividends and pensions, to limit tax relief to the lower rate of income tax for top rate earners.

Options such as phasing out mortgage interest relief would help keep the lid on consumer spending as people receive their pounds 25bn building society share windfall this summer and autumn.

Kenneth Clarke, the former Chancellor, accused the Chancellor of being in "a tearing hurry" with measures which threatened to slow down the economy.

Mr Clarke, a Tory leadership contender, warned Mr Brown that "playing about with corporation taxation, taxation on investment, as he's proposing, is very dangerous indeed. He has already raised interest rates.

"He looks as if he's going to raise the tax burdens overall on corporate taxation, on savings and investment. All that is going to have a marked effect on the economy which I think is unnecessary."

Mr Brown said in an interview for the Observer yesterday that ministers will not be able to change their departmental spending totals for two years. The BMA is seeking a meeting this week with Frank Dobson, the Health Secretary, to raise their concerns for health spending.

Sources close to Stephen Dorrell, the former Health Secretary, have told The Independent that the funds in the Treasury books are inadequate for the NHS, with a rise of only 0.3 per cent in real terms for next year.

Public sector pay is likely to be squeezed for a further two years.

A likely early move is a reduction in the tax credit on Advanced Corporation Tax, as this credit means pension funds pressure companies to pay high dividends. Mr Brown will introduce a medium-term growth strategy alongside the Treasury's existing medium-term financial strategy, stressing the Government's commitment to high and sustainable employment and a higher long-term growth rate.

Brown and Brussels, page 9

Leading article, page 14

Brown's targets

Reduction in VAT on household fuel from 8 per cent to 5 per cent

New council housing building programme funded by the phased release of pounds 5bn in capital receipts.

pounds 5bn windfall profits tax on privatised utilities

A welfare to work scheme to take 250,000 under-25s off the dole.

New taxes to deter quick profits on shares.

A fundamental long-term review of spending.