Election ;97: The challenges facing Britain's new Labour government

`Independent' journalists look at the priority areas that Tony Blair's team will have to tackle as the cheers fade and they get down to the business of running the country; Interest rates set to rise ahead of July Budget set to begin task set out economic priorities
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The Independent Online
Reduce unemployment, reverse inequality, reshape the welfare state, raise long-term growth - these are the new Government's economic ambitions.

Gordon Brown's most pressing decision will be less lofty, however. Unless there is a postponement, he is due to meet Eddie George, Governor of the Bank of England, on Wednesday to decide whether to put up interest rates.

Mr George will recommend a small increase. Not only does he still think the economy needs cooling, but the Bank could scarcely reverse its advice after clashing with Kenneth Clarke for the past six months. If the Chancellor does not want to alarm the financial markets straight away, he will heed the advice.

After that, the meetings will change form. In a bid to avoid raising the curtain on a "Gordon and Eddie show", Mr Brown has said he will appoint a monetary policy committee at the Bank of England to take the personality out of the monthly discussion. He will also appoint a new Council of Economic Advisers at the Treasury.

Mr Brown has promised a Budget within two months, and 1 July is the likely date. It will definitely do two things: introduce the windfall tax on privatised utilities, and reduce VAT on domestic energy to 5 per cent. Concern about the threat of legal challenges means there will be a few weeks of sensitive discussions about which companies will be liable for how much.

The additional revenue raised by the windfall levy is earmarked for measures to get the young and long-term unemployed into jobs. The bare bones were sketched out in the manifesto. Anybody under 25 is meant to face a choice between a subsidised job, a voluntary sector or community job and full- time education - the unemployment option is being closed. The plans could be implemented later this year, although it is impossible to be sure how quickly they might deliver the desired result.

There is speculation in the City that the Government will take advantage of its landslide to raise extra taxes in the Budget. The fact that many experts would recommend increasing taxes rather than interest rates would help justify it.

Companies would probably be the target for any rise in tax. But many economists expect this in a later Budget as part of a full-scale reform of company taxation to encourage investment.

As Labour has pledged to stick to the existing departmental spending plans this year and next, Mr Brown can avoid the traditional bruising round of negotiations. There will be nearly 18 months to debate the reshaping of public expenditure.

Mr Brown's advisers have signalled a wish to move the Budget back to March, but experts think it might be necessary to have one this November too. The long gap between tax changes in November 1996 and March 1998 would leave too much opportunity for tax avoidance schemes to emerge.

Although there is no chance that the personal tax burden as a whole will be increased,there is a possibility of shifting it. The landslide could make Gordon Brown bolder about introducing a 10p starting rate of income tax for the low-paid, financed by reduced allowances for the better off.

The other big issue demanding immediate attention will be European monetary union. There is barely enough time for an eager government to make the first wave in 1999, so nobody expects this administration to make the dash.

But the question of Britain's later plans will come up at the Inter-Governmental Conference in mid-June. The start of preparations in July for the British presidency of the EU in the first half of next year means that the UK, one of the few countries staying out, will play a crucial part in judging which of the others can join.

There will also be early announcements about plans to sign up to the social chapter and about setting up a commission on the promised minimum wage.