Green Budget: Brown helps poor, and warns the rest

Gordon Brown yesterday gave pensioners, lone parents and the unemployed a surprise down-payment on Labour's One Nation pledges. With backbench critics delighted, Anthony Bevins and Diane Coyle examine the Chancellor's first pre-Budget statement.

Winter heating help for pensioners, a 10-fold increase in childcare places for lone parents, and a half-price bus and rail fare scheme for young people helped into work or training under Labour's New Deal jobs programme yesterday delivered a much-needed morale-boost for Labour ministers and MPs.

The Chancellor of the Exchequer said at the end of a Commons statement outlining consultative plans for next spring's Budget: "This is a Government that keeps its promises and is prepared to take action where action needs to be taken."

Following a spate of announcements and media speculation that the Treasury was planning a slash-and-burn policy for some of the fundamentals of the welfare state, Labour MPs greeted the good news with spontaneous cheers of relief. There was even a congratulatory pat on the arm from Tony Blair.

The statement was greeted warmly by business, too, pleased by the tough stance on government finances and a surprise cut in corporation tax. But business leaders tempered their reaction by warning that the tax change would cost industry billions of pounds in the first instance.

The political heart of the statement offered the switch of a European Union payments dividend of pounds 400m to help pensioners with winter fuel bills; an extra pounds 20 for every pensioner household this winter and next winter, with pounds 50 extra for the 2 million pensioner households on income support. But there was more for the poorest pensioners - a promise of action to encourage the other 1 million pensioner households who do not claim their income support, about pounds 15 a week, to take up their benefit entitlement.

For lone parents, Gordon Brown extended the welfare-to-work programme from those with school-age children to all lone parents and, to meet backbench criticism, every single parent coming on to benefit from April will be offered help to find work. The big surprise, however, was on child care. Harriet Harman, Secretary of State for Social Security, will today give details of a pounds 300m lottery-funded programme to set up as many as 30,000 new out-of-school clubs for nearly 1 million children of lone-parent families.

Mr Brown also announced the go-ahead for detailed work on a tax-credit system, and a new national insurance structure for the low paid, intended to eradicate the poverty trap deterrent to work under which some people lose more than a pounds 1 for every extra pounds 1 they earn.

Mr Brown warned that there would be no relaxation of Treasury disciplines on the economic front. "We must all be long-termists now," he said. "The reforms we are introducing will take time. But it is in no one's interest if today's pay rise threatens to become tomorrow's mortgage rise."

Peter Lilley, the shadow Chancellor, prompted Labour jeers, and Tory cheers, when he welcomed the good economic news of the statement, which he told the House, was the "golden economic legacy which we bequeathed this government". But he also said Mr Brown was offering little comfort for the typical home-owning family who faced pounds 650-a-year higher bills from increased interest charges, a cut in mortgage tax relief and extra burdens on pension funds.

The Liberal Democrat Treasury spokes-man, Malcolm Bruce, said later: "Budgets should involve both income and expenditure, but this is the Polo mint Budget, with a hole in the middle where the extra spending on schools and hospitals ought to be."

The business and financial markets gave the Chancellor's statement a favourable reaction, with a wide welcome for a surprise announcement of a further cut in the corporation tax rate, along with abolition of advance corporation tax from 1 April 1999. However, there was great concern about how much a switch to quarterly payment of corporate taxes would cost business during the transition period. Apart from that worry, Mr Brown's performance got good reviews beyond Westminster and Whitehall. In the City, the updated forecasts for the economy and the public finances were seen as an exercise in deliberate caution.