Brown set for election giveaway

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GORDON BROWN unveiled a package of help for Britain's pensioners yesterday as he painted a rosy economic picture that will allow him to cut taxes and increase public spending before the next general election.

In his pre-Budget report, the Chancellor raised his forecast for economic growth and predicted a Treasury surplus totalling pounds 33bn over three years, much more than had been expected. City analysts now predict an even bigger surplus, and cabinet ministers believe that Mr Brown will open his huge "war chest" before the election.

Although the old age pension will rise by just 75p next April, Mr Brown delighted Labour MPs by announcing that three million pensioners aged 75 and over will receive free television licences from next autumn. The pounds 100 winter fuel bonus, to be sent to all pensioners shortly, will now be paid every year; many pensioners will also benefit from a new 10p tax rate on personal savings.

Mr Brown announced an extra pounds 300m for improving school buildings and said the National Health Service would receive the same amount from a planned 5 per cent rise in tobacco duties next March.

The Chancellor made two retreats - by abolishing the rule under which petrol taxes automatically rise by 6 per cent every year on top of inflation, and by scaling down the "energy tax" on industry, as predicted in The Independent yesterday.

Petrol tax rises will be decided in each Budget, with any proceeds from rises over inflation ploughed back into roads and public transport.

Together with the injection of NHS cash from tobacco revenues, this marks a shift towards "hypothecated" taxation, with money from individual taxes earmarked for specific projects.

The Tories seized on figures in Mr Brown's report showing that the overall tax burden would rise from 35.3 per cent of national income when they left office to 37 per cent this year - a bigger share than previously forecast.

But the new figures will encourage Mr Brown, who has already announced a 1p cut in the basic rate of income tax next April, to go for further reductions to bring down the tax burden before Labour seeks a second term.

Mr Brown disclosed another step towards an American-style "workfare" system, with the New Deal for jobless young people extended to all adults. Those who refuse work or training will face losing their unemployment benefit.

People suspected of working in the black economy, which costs the Exchequer an estimated pounds 50bn a year, could be forced to sign on every day at benefit offices.

The Chancellor said the two main themes of his package were "enterprise and fairness for all". He outlined nine schemes to encourage firms to grow, including a cut in capital gains tax, but said he wanted a "wealth- owning democracy for all", in which ordinary workers would take up tax- free share options in their firms. The Chancellor also promised to tackle social exclusion with new grants to help jobless people to start their own companies. He pledged to halve child poverty by 2010 and to ensure that more than half of children would go to university by then.

Mr Brown insisted that he would not relax the strict financial discipline that Labour has displayed since the 1997 election, and Treasury sources later dismissed speculation about a "war chest" for the next election as absurd.

The Chancellor forecast that the economy would grow by 1.75 per cent this year, up from the range of 1 to 1.5 per cent set out in his March Budget. He predicted growth of between 2.5 and 3 per cent next year.

His forecasts remained more cautious than many others', although even on the Treasury's own figures there will be about pounds 3bn a year available by next March's Budget for tax cuts or higher spending.

Experts said that his caution probably reflected his desire to limit the expectations of cabinet ministers before a new three-year spending programme is negotiated, by next summer. "He is going to find himself with surpluses worth pounds 10-14bn a year," said Douglas McWilliams, of the Centre for Economics and Business Research.

Most welcomed the apparent prudence without entirely believing it.

John Hawksworth, of Pricewaterhouse Coopers, said any relaxation on the fiscal front would force interest rates higher. "Given the uncertainties, the Chancellor is right to keep his war chest firmly shut for the moment," he said.

Business gave a broad welcome to the detailed measures to boost enterprise and productivity. George Cox, the director general of the Institute of Directors, said: "The moves to foster an enterprise economy are welcome."