City relaxed at scale of £6bn handouts by 'prudent' Chancellor

Analysis

Gordon Brown yesterday conjured up a package of measures that will put more money into the pockets of pensioners, motorists, entrepreneurs and those living in inner cities while maintaining he had done nothing to put Britain's economic stability at risk.

Gordon Brown yesterday conjured up a package of measures that will put more money into the pockets of pensioners, motorists, entrepreneurs and those living in inner cities while maintaining he had done nothing to put Britain's economic stability at risk.

Although the centrepiece of his pre-Budget Report was a multi-billion pound handout to buy off pensioners and fuel protesters, the Chancellor also found scope to reward businesses small and large, savers, working families and even ministers of the church.

But the Chancellor insisted that fiscal prudence would remain his watchword and promised there would be no quick fixes that could put at risk the goal of higher growth, greater employment and "long-term prosperity for all".

Mr Brown said that the current Budget surplus, now forecast to rise to £16.6bn this year, would be used to pay down the national debt, enabling Britain to move towards the target of reducing borrowing as a proportion of national income from 37 per cent to 30 per cent.

Declaring that Britain could either "seize or squander" the fruits of a strategy which had delivered the lowest unemployment for 20 years and the lowest mortgages in 30, Mr Brown laid out measures to raise productivity and foster enterprise.

The pre-Budget package was broadly welcomed by business, motoring organisations and pensioner groups. City economists were also relaxed about the scale of the handout although the full costs were not included in the Chancellor's Budget arithmetic because a number of the measures - notably the 3p cut in fuel duty - are proposals for consultation and not firm commitments. This could raise the total cost of the measures to between £5bn and £6bn.

There was a £1bn package of tax concessions to help regenerate deprived inner city areas and stimulate more investment. The widely trailed measures include the abolition of stamp duty on all property transactions, cuts in VAT on property conversion, tax breaks for cleaning up contaminated sites and a new tax credit for "community investment".

Building on measures to help the disadvantaged, the Chancellor also announced plans to extend the New Deal for lone parents, introduce a new job transition service to help areas hit by large-scale redundancies and tackle child poverty by the further integration of the tax and benefits system.

Business was rewarded with a range of measures to cut taxes, simplify VAT for small firms and extend tax breaks for share options in entrepreneurial firms. The Chancellor also said he would bring forward proposals to enable all companies to benefit from tax breaks on research and development expenditure.

The Chancellor hopes the pay-back will be increased investment by industry and higher productivity from the workforce - one of the holy grails the Treasury has set itself for the next Parliament. Although investment accounts for a bigger share of the economy in the UK than in the US, Britain continues to lag far behind the productivity levels of the Americans, Germans and French.

The Confederation of British Industry welcomed the measures, saying they would boost business without threatening economic stability. The Institute of Directors also welcomed the Chancellor's announcements but cautioned that the tax system remained too complicated and that for many businesses it was difficult to understand, hard to comply with and time consuming to administer.

While the elderly got a £5 increase in the single pension and an £8 increase for pensioner couples, savers were rewarded with news that the £7,000 tax-free limit on contributions to Individual Savings Accounts would be retained for a further five years until April, 2006.

The tax cuts aimed at motorists and hauliers were defended on the grounds of the contribution they would make to help Britain achieve its Kyoto target of cutting greenhouse gas emissions by 12.5 per cent compared with 1990 levels by 2012. The measures, which include a £55 reduction in road tax for an extra five million cars under 1,500cc and a halving overall of vehicle excise duty on lorries will cost an estimated £2.5bn.But the business lobby expressed disappointment that the Chancellor had not introduced further concessions to help industry cope with the climate change levy, which takes effect next April.