Brown set to soften middle class attack

...while Sarah's interest rate rises

GORDON Brown will delay for at least a year plans for taxing child benefit in his Budget tomorrow after intervention by Tony Blair to ease the expected pounds 1bn squeeze on the middle classes who helped to give Labour its landslide victory last May.

The Prime Minister spent Friday at Chequers going through the Chancellor's Budget plans and informed sources have told The Independent that he personally watered down some of Mr Brown's proposals to avoid alienating the middle classes.

"Tony is a moderator and they spent Friday with Gordon's enthusiasm for radical change being overridden by Tony's political nous," said the Government source.

Mr Brown will boost spending on health and education, but will reinforce his reputation as the "Iron Chancellor" today by announcing legislation requiring more openness from the Treasury in future about spending and taxation calculations.

Petrol, cigarettes and alcohol will all be hit by big hikes in duty by the Chancellor, with an expected 27p on a gallon fuel as part of a "green" and health agenda. But the new green taxes on motorists and the green belt, including car parking at out-of-town supermarkets, will be delayed for 12 months.

There will be an pounds 80m boost for the arts, with pounds 40m to scrap charges at the Victoria & Albert museum, the Imperial War museum, and the National Maritime and Science museums.

Taxing child benefit for those on the 40 per cent higher rate of income tax could go ahead next year to finance a pounds 700m increase in spending on measures to reduce unemployment and poverty. Mr Brown has also had his sights on scrapping mortgage tax relief, which he has reduced to 10 per cent, in spite of Mr Blair's fears about upsetting the middle classes.

The centrepiece of the Budget will be the pounds 1bn Working Families Tax Credit, to be introduced in April next year, at the same time as taxing child benefit with an uprating to sweeten the pill. Childcare Credit will replace Family Credit to help low-income families by making sure work pays, but it will not be as generous as recent reports suggested, leaving Harriet Harman, the Secretary of State for Social Security, with a tough job in selling the package. The moves will have a mixed affect with childcare costs; The Independent is campaigning for a tax allowance for all working mothers to help with childcare.

The Bishop of Liverpool, the Rt Rev James Jones, warned the Chancellor against forcing mothers to work. "We must recognise parenting is work," he said.

Mr Brown has long had child benefit in his sights, but Baroness Castle, the veteran Labour campaigner, and John Edmonds, the union leader, who will today lead a mass lobby of Parliament to defend the welfare state both warned that it could hit women who are now taxed separately. The new low-starting rate of income tax of 10p in the pound for the low paid will be announced for next year.

Today Mr Brown will set out plans to bind himself and successors to prudent fiscal policies, making sure future governments are legally required to set out clear rules for tax and spending policies and stick to them with a "Code for Fiscal Stability". He is determined to make sure no government can play fast and loose with taxpayers' money.

Clauses in the Finance Bill following tomorrow's Budget will form the legal basis for a code requiring every government to publish its own fiscal rules and supporting documentation. The fiscal code will be based on five principles: transparency, economic stability, responsible tax and spending policies, fairness and efficiency. According to a source in the Treasury: "For too long fiscal policy has been conducted behind closed doors."

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