Leading article: Prudent Mr Brown can afford to be generous to the working poor

THE NATURAL Presbyterian in Gordon Brown eschews noisy self-congratulation. His speech in New York yesterday was a model of quiet authority and prudence, underlined by a rare - and wholly approving - comment on the Bank of England's pre-emptive and controversial raising of interest rates last week. But he has plenty to boast about. This is a mid term unprecedented in the long and chequered history of political economy under Labour.

By this stage of the 1974-9 Labour administration, the Chancellor of the Exchequer, Denis Healey, was preparing to confront a Labour Party conference baying for his blood with the prospect of an application for rescue by the International Monetary Fund. In contrast, the current Chancellor was able calmly to remind his audience, the Council for Foreign Relations, that short-term interest rates had peaked at half the level of the early Nineties, that underlying inflation was at its lowest level for five years, that borrowing had been reduced by pounds 31bn over two years, and that growth could be more than 3 per cent in 2001, conveniently the year earmarked for the next general election.

Mr Brown has had his share of luck; but this achievement has not been accidental. Almost from the moment he became shadow Chancellor in 1992 Mr Brown was determined to reverse Labour's record of spending first and paying the price later, a price that invariably included the life of the administration itself. Having risked unpopularity, not least by keeping a tough grip on spending during the first two years, he is entitled to the high status he now enjoys at home and abroad.

The central question now, however, is what to do with the fruits of Mr Brown's success. Nothing in his speech yesterday suggests that he plans recklessly to empty the entire contents of his so-called war chest. On public spending the Chancellor will surely prove as tough a negotiator as he has ever been in resisting demands from spending ministers, particularly those outside Health, Education and Transport, who have failed, in his judgement, to modernise their departments to the extent that they can be guaranteed to provide value for the taxpayers' money.

But Mr Brown's political senses have not entirely deserted him. He is in the enviable position of being able to combine some generosity with prudence. On tax, we believe, he should resist the temptation for headline cuts in the standard rate, and the siren calls - which seem to be listened to sympathetically by the Prime Minister - to "rescue" middle-income Britain, from police inspectors to school heads, from the higher-rate taxes that they pay. (Although, it must be remembered, this is only on a small proportion of their earnings.)

Instead, Mr Brown should focus on taking those at the bottom end of the income scale out of tax altogether. It is simply not sensible for those earning well under pounds 10,000 a year to pay income tax. Such a measure, moreover, would immediately wipe out large parts of the black economy. He would also remove much of the negative incentive of unacceptably high marginal rates of tax, and he would be redistributing wealth to the working poor. Nothing could better exemplify the combination of fairness and enterprise to which the Chancellor has repeatedly committed the Government. It would also, in time, yield a handsome political return for the Chancellor and his party.