Green Budget: Chancellor's report - Package that aims to `meet the peop le's priorities'

The Chancellor promised to focus on "the people's priorities" when he made the first annual pre-budget statement. There were gifts for lone parents and pensioners, but tough words on public spending and pay.

There were cheers from the Labour benches as Gordon Brown said he would make life easier for pensioners this winter. In his speech, he managed to please MPs who had complained about benefit cuts without having to budge from his tough line on spending.

"This is a government that keeps its promises and is prepared to take action where action needs to be taken," he said. "A government that is meeting the people's priorities, even as we confront the difficult choices our country must make to build for the long term."

While cuts in Lone Parent Benefit will still be implemented as planned, there was some comfort for those who have complained about the move. An offer of work for every unemployed lone parent, originally planned as a pilot scheme from April 1998 and as a national scheme from next October, would now be brought in across the country in April, Mr Brown announced.

He also produced more money for pensioners to pay their winter fuel bills after a row about his recent refusal to increase cold weather payments.

He promised to use pounds 400m saved from the EU budget to pay an extra pounds 20 to each pensioner household, and pounds 50 to almost 2 million pensioners on income support, before the bills would need to be paid.

There would also be more money for child care and health, he said. An extra pounds 300m had been budgeted over five years to set up as many as 30,000 out-of-school clubs for nearly a million children. To staff them, 50,000 unemployed young people would be given six months' training under the New Deal - paid for by the Windfall Tax - as child carers.

On health, there was a hint of more money on top of pounds 300m extra this year for the NHS and pounds 1.2bn next year - though there was no immediate promise of cuts in waiting lists.

"As our comprehensive spending review reallocates resources towards higher priority areas, there will be real year-on-year increases in spending on front-line patient care," Mr Brown said.

There were two other measures to help the low-paid and the unemployed. The Chancellor promised a review of National Insurance to help those on low incomes by bringing the charge more in line with income tax. He also announced that transport companies were to provide passes for young people on his New Deal for the unemployed, cutting their fares by at least 50 per cent.

Reports that the speech would foretell a "green Budget" brought just one firm pledge: a cut in VAT on home insulation and other energy-saving schemes from 17.5 per cent to 5 per cent, helping to insulate 40,000 more homes per year.

Mr Brown also promised a consultation on water pollution, a further look at the tax system after the Kyoto summit on climate change next month and the possibility of a European deal to reduce VAT on a wider range of energy-saving materials.

Pre-publicity which suggested there would be a clampdown on tax havens such as Guernsey and the Isle of Man also proved to be premature. Although Mr Brown promised measures in the Budget to cut tax avoidance, he did not specifically refer to tax havens.

A third area on which weekend stories focused - the 10p starting rate of tax - also failed to yield any concrete proposals. There have been suggestions that the tax will be introduced in March, but yesterday all Mr Brown had to say on the subject was that the measure would be introduced "when it is prudent to do so".

Among the other measures announced was the abolition of Advanced Corporation Tax from April 1999 and a further cut in the main rate of the tax from 31 per cent to 30 per cent. Mr Brown also promised a code for fiscal stability, under which the Government will report to Parliament on how it is meeting its fiscal rules.

To add to measures in the July Budget designed to help the film industry, the Chancellor said he and Margaret Beckett, the President of the Board of Trade, were looking at ways for small businesses to draw on venture capital.

However, there were tough messages contained in the speech. The Government could not relax its stance on public spending, Mr Brown said, because it might fall into the trap of its Conservative predecessor.

"We will learn the lessons of 1988 when it was wrongly assumed the structural deficit had disappeared and the penalty was the return of boom and bust .... What companies fear most is a return to the boom-bust instability of the past," he said.

He also promised wage restraint and called for "responsibility not just on the shop floor but also from Britain's boardrooms outwards - where in the interests of all there must be moderation not excess and where an example should be set."

"The worst form of short-termism would be to pay ourselves more today at the cost of fewer jobs tomorrow and lower living standards in the very near future," he said.

There were more Labour cheers as the shadow Chancellor, Peter Lilley, said he welcomed some aspects of the statement.

The good economic news, which included a cut in public borrowing from pounds 23 bn last year to pounds 6bn next year, was the "golden economic legacy which we bequeathed this government", he said.

However, he added that it showed tax rises in the July Budget had been unnecessary. "You didn't need to break the Prime Minister's solemn election pledge that we have no plans to raise at all. The simple truth was that you were determined to increase taxes in July so you could increase spending later," he said.

Mr Lilley said Mr Brown's real motive was the same as every other Labour Chancellor, "all of whom have been engulfed by the spending demands of their backbenchers".

Nothing the Chancellor had proposed would do much to help the typical home-owning family who faced pounds 650 a year higher costs because of interest- rate rises, a cut in mortgage tax relief and extra burdens on pension funds, he claimed.

Malcolm Bruce, the Liberal Democrat Treasury spokesman, described the statement as "a polo mint Budget, with a hole in the middle where the extra spending on schools and hospitals ought to be".

"How is it that the Chancellor may be able to find the money for introducing a 10p tax rate in March, but not the money to stop waiting lists soaring and class sizes rising?" he asked. "Until the Chancellor drops his Tory spending plans, NHS patients and those who rely on our state schools may be forced to conclude that the Tories, though no longer in office, are effectively still in power.