Brown appeals to heartlands but also tries to keep business sweet

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Gordon Brown yesterday appealed directly to Labour's traditional heartlands with a series of pledges on health spending, pensions and jobs while simultaneously seeking to embellish the Government's reputation as a supporter of enterprise.

The Chancellor's pre-Budget report flagged up long-term proposals for hugely increased spending on the National Health Service and a £2bn boost in the short term for pensioners. Mr Brown also outlined plans to expand the New Deal, extend tax credits for the low paid and increase investment in deprived inner-city areas.

But he also announced four new tax breaks for industry and entrepreneurs, declaring that the present global economic uncertainty meant that now was the time to press ahead with the Government's "enterprise agenda" rather than defer it.

Mr Brown, saying he was "cautiously optimistic" about the prospects for the British economy" and forecasting growth next year of between 2 and 2.5 per cent, outlined plans to build on what he called "a stronger, fairer Britain" in an uncertain world. "While the British economy has been stable, it can and must be stronger," he added. Although tax revenues would be significantly lower this year and next year the Chancellor was well within his "golden rules" – that the budget must balance over the economic cycle and that the Government should borrow only to invest.

Mr Brown's success in appealing to a wide cross-section of interests was reflected in the backing of both the trade unions and big business for his statement. The Trades Union Congress welcomed it as a "balanced Budget" while the Confederation of British Industry (CBI) applauded the Chancellor's "sensible and support- ive" package of measures.

The centrepiece of Mr Brown's Commons statement was undoubtedly his announcement that the NHS would need "significantly more long-term investment" to undo 50 years of underspending.

He coupled this with an appeal for a "national consensus" on how best to achieve a better publicly-funded NHS, a clear reference to the prospect of raising taxes to pay for an improved service.

The proposals for the NHS follow the publication yesterday of a 220-page interim report by the former chief executive of NatWest, Derek Wanless, which concludes that a publicly-funded NHS remains "both the fairest and the most efficient system for this country".

The Chancellor also built on the package of measures for pensioners spelt out a year ago by announcing plans for a "pensions credit" from 2003 which would protect investment incomes of the retired from taxation.

The pensioner measures were coupled with a pledge to extend the New Deal and the announcement that the working families tax credit will be extended to people on low incomes from 2003, whether or not they have children.

The Chancellor also announced a series of initiatives to increase investment in run-down inner-city areas. Property transactions valued at up to £150,000 will be exempt from stamp duty altogether in 2,000 wards around the country and there will be a tax credit worth 25 per cent to encourage investment in inner cities. For every £100m the private sector puts up, the Government will contribute £25m.

The measures aimed at business include a new system of tax credits for research and development spending in large companies and a widening of the enterprise management initiative scheme, which allows small entrepreneurial companies to give their executives share options.

There were also a series of measures to cut corporation taxes and simplify VAT for small firms and reduce the capital gains tax burden for investments held for one to two years.

In a bid to meet what the Chancellor called the "productivity challenge", the Government announced plans to extend workplace training. An initial £40m has been made available to set up pilot schemes from next September.

Nor did the Chancellor neglect the green lobby, announcing that the Government would consult over 10 new environmental measures. These range from additional tax relief for businesses investing in environmentally-friendly technologies to lower taxes for low-carbon vehicles such as those powered by hydrogen fuel cells.

But there was no concession over the controversial climate-change levy, which has been widely criticised by industry.

Mr Brown's statement spelt out the costs to the nation of the two unexpected crises Britain has faced this year, the foot-and-mouth epidemic and the war on terrorism sparked by the attacks in America on 11 September. The Government expects to spend £2.7bn helping rural areas recover from foot-and-mouth, and £150m has been made available for the fights against terrorism. This will be split between the Ministry of Defence, police forces and financial watchdogs. An extra £100m is being made available for humanitarian assistance in Afghanistan and elsewhere in the world.

But Mr Brown also said that one of the lessons of the tragedy of 11 September was that the developed world must do more to demonstrate that globalisation worked for everyone. Britain, he said, would be proposing a $50bn (£35bn) international fund to help achieve for developing countries what the Marshall Plan did for Europe after 1945.

Having already abolished betting tax, the Chancellor has announced a similar measure to cover football pools, abolishing the 17.5 per cent tax paid by individuals with a 15 per cent tax on the gross profits of pool companies.

Proposals were also unveiled to extend the crackdown on tobacco smuggling to other forms of criminal fraud after new figures showed there had been a 76 per cent reduction in revenues lost from cross-Channel smuggling of alcohol and cigarettes.