Has Gordon trumped the Tories already?

"He is going to enjoy this," one close ally said just before Gordon Brown began his Budget speech. Not every Chancellor would revel in his big day, and most would be very nervous. Mr Brown duly revelled, and produced the most overtly political of his eight Budget packages.

"He is going to enjoy this," one close ally said just before Gordon Brown began his Budget speech. Not every Chancellor would revel in his big day, and most would be very nervous. Mr Brown duly revelled, and produced the most overtly political of his eight Budget packages.

While Labour was in opposition, one of the phrases Mr Brown used almost obsessively was the "dividing lines" between the party and the Tories. Yesterday's Budget was all about the choice facing the country at the general election expected in May next year. To a remarkable extent, it was shaped by a keynote speech on Tory spending plans made last month by Oliver Letwin, the shadow Chancellor.

Mr Brown is convinced the Tories have made a huge strategic error by promising to freeze spending on other areas so they can outspend Labour on hospitals and schools. So he took great delight in rattling off the issues on which Labour would outspend the Tories.

The opposition is happy to do battle on this territory, confident voters will believe its warnings about "Labour's third-term tax rises". But some senior Tories are privately worried that Mr Letwin declared his hand too early, allowing Mr Brown to trump it yesterday.

The Chancellor's joy in fatherhood may have mellowed Mr Brown a little, and his political marriage to Tony Blair is going through a good patch after hitting a rocky one last autumn. But the Chancellor is restless, impatient to do more. He has plainly not lost the appetite for politics that he had as a university student.

Some cabinet colleagues regard his enthusiasm as an excuse to interfere in their affairs. But the Treasury as an institution, and Mr Brown himself, remain less than impressed with the performance of other Whitehall departments.

Although Mr Brown could trumpet Labour's higher spending than the Tories, it is wrong to see his package as launching a spending spree. His "dividing lines" mask what his allies predict will be a "bloody" public spending round, the most difficult since Labour came to power, before a new three-year programme is published in July. Defence, which is already squealing, and the Home Office, will be very much in the Chancellor's sights. He regards both departments as inefficient and unreconstructed.

The merger of Customs &Excise and the Inland Revenue will expand Mr Brown's already large empire. Sir Peter Gershon's Treasury-driven efficiency review will re-engineer the whole of Whitehall. The spending review, which will, in effect, write Labour's general election manifesto, and the new efficiency targets he announced yesterday will further enhance Mr Brown's power over the whole of the Government.

Indeed, when he spoke about Britain's global reach and the challenges in which he wanted the country to lead the world, he sounded more like a Prime Minister than a Chancellor. Interestingly, some ministers believe Mr Blair is no longer as restless to secure Labour's goals as Mr Brown. Perhaps that comes with being Prime Minister for almost seven years. Perhaps focusing on the detail of another complex NHS reform seems small beer when you have deployed British troops on five occasions and now worry constantly about the terrorist threat facing Britain.

Relations between Mr Blair and Mr Brown have warmed in recent months. But some Blair allies say this merely reflects how chilly they had been. "They don't agree on everything but the difference now is that they argue it out face to face rather than sulk in their armed camps and lob grenades at each other," one insider said.

But there are clouds on Mr Brown's horizon. He frets about "delivery" and ensuring the voters feel a real improvement before the election. He is scathing about half-baked reforms floated by some Blair advisers. He is adamant that he is not against reform, but he worries that "reform by headline" can give the impression that the investment in public services is not working. That is dangerous, because it plays into the Tories' hands and makes Labour's pledges of more money harder to justify.

Despite his upbeat tone yesterday, Mr Brown's efficiency drive perhaps underlines his nervousness about delivery. He is not only anxious to disarm the Tories' waste-hunter, David James, the troubleshooter who salvaged the Millennium Dome. He is also keen to reassure the voters that the billions he has pumped into public services are not being wasted and the money is reaching the front line. But some people may regard the sudden rush of efficiency measures as rather late in the day. After all, promising to cut waste is the oldest trick in the political book.

Another frustration for the Brownites is that the political battle over tax and spend may be again overshadowed by events beyond even the Chancellor's control. Last year's Budget came on the day that Saddam Hussein's statue was toppled in Baghdad. Yesterday, the events in Madrid and the prospect of a similar terrorist act in Britain set a sombre backcloth to Mr Brown's showpiece.

Another reason for Mr Brown's hyperactivity is his undimmed ambition to succeed Mr Blair. He is probably closer than ever to winning the big prize; Mr Blair no longer looks immortal, politically or personally. And yet for Mr Brown, it is a case of so near, so far. The handover of power is not going to happen before a general election, as some Brownites had hoped.

There is talk of a "new deal" in which Mr Blair has promised Mr Brown he will stand down midway through the next parliament and endorse him as his successor rather than back an "anyone but Gordon" candidate such as Alan Milburn or John Reid. But Mr Brown knows better than to count his chickens. "All he has had from Tony is hints; with Tony, nothing is bankable," a Brown supporter said.

Although the euro has dropped off Mr Blair's radar screen for now, allies insist he is determined to have "one more crack" at it before departing the stage. Mr Brown was neutral rather than hostile to the euro yesterday, and will review the prospects of entry each year. But he has a slower timetable than Mr Blair and will not speed it to hasten the Prime Minister's departure.

The nightmare scenario for the Chancellor is that Mr Blair carries on well into a third Labour term, handing him a rotten legacy of a dying administration heading for an inevitable defeat. The measures he announced yesterday are designed in part to head that off by renewing Labour in office. But it will be a hard act to pull off.

EIGHT YEARS - EIGHT BUDGETS

1997

Income tax: Mortgage interest relief cut to 10 per cent from April 1998.

VAT: Rate on domestic fuel cut from 8 per cent to 5 per cent.

Excise duties: Road fuel duties commitment raised from 5 per cent per annum to 6 per cent pa real increase. Tobacco duty commitment raised from 3 per cent pa to 5 per cent pa real increase.

Capital taxes: Graduated stamp duty introduced: 1 per cent for properties between £60,000 and £250,000; 1.5 per cent between £250,000 and £500,000; 2 per cent over £500,000.

Company taxes: Windfall tax on privatised utilities. Main corporation tax rate cut from 33 per cent to 31 per cent from April 1997. Small companies' rate cut from 23 per cent to 21 per cent from April 1997. Dividend tax credits for pension funds and other companies abolished immediately, for all others from April 1999.

Tax take: £17.8bn; Tax/GDP: 35.4 per cent.

1998

Income tax: Working families' tax credit

Married couple's allowance restricted to 10 per cent. Tax on company cars increased. Excise duties: Differential widened between diesel and unleaded petrol.

Capital taxes: Personal capital gains tax reformed; Stamp duty raised to 2 per cent and 3 per cent

Company taxes: Main rate cut to 30 per cent, small companies' rate to 20 per cent

Tax take: £ 2.29bn; Tax/GDP: 37.1 per cent

1999

Income tax: Basic rate cut from 23 per cent to 22 per cent; new 10 per cent starting rate Married couple's allowance abolished from 2000 for under-65s. Children's tax credit announced from April 2001. Mortgage interest relief abolished from April 2000. High mileage discounts for company cars reduced.

National Insurance: Starting point for payment of employee National Insurance contributions aligned with income tax by April 2001. Upper earnings limit raised above inflation in both April 2000 and April 2001. Self-employed structure reformed from April 2000.

Employer contributions on all benefits in kind. Employer rate cut by 0.5 of a percentage point from April 2001.

Capital taxes: Stamp duty raised to 2.5 per cent on properties between £250,000 and £500,000, 3.5 per cent on properties over £500,000.

Company taxes: New 10 per cent corporation tax rate for companies with low profits introduced from April 2000. Climate change levy from 2001-02.

Tax take: -£6.00bn; Tax/GDP: 36.9per cent

2000

Income tax: Working families' tax credit and child premiums in children's tax credit increased.

National Insurance: Employer rate to be cut by 0.3 of a percentage point from April 2001, instead of 0.5 of a percentage point, to reflect reduction in climate change levy. Further cut in employer rate by 0.1 of a percentage point from April 2002, to balance introduction of aggregates levy.

Excise duties: Road fuel duty frozen in real terms. Cigarettes increased by 5 per cent in real terms.

Capital taxes: Stamp duty raised to 3 per cent on properties between £250,000 and £500,000, 4 per cent on properties over £500,000.

Company taxes: Climate change levy cut by £0.7 billion from introduction in April 2001. Aggregates levy introduced from April 2002.

Tax take: -£6.23 bn; Tax/GDP: 37.7per cent.

2001

Income tax: Working families' tax credit and child premiums in children's tax credit increased. Overindexation of starting-rate band. ISA limit extended to £7,000 pa until April 2006.

Excise duties: Duties for ultra-low sulphur petrol cut by 2p and for ultra-low sulphur diesel by 3p. Tobacco duties increased with inflation; alcohol duties frozen.

Company taxes: Abolition of withholding tax on intra-UK corporate interest.

Tax take: -£6.93bn; Tax/GDP: 36.8 per cent

2002

Income tax: Child tax credit replaces various income-related payments for children. Working tax creditfor both families with and families without children; working families' tax credit abolished. Personal allowances for those aged under 65 to be frozen in cash terms in April 2003.

National Insurance: Uncapped 1 percentage point increase in employee, employer and self-employed rates from April 2003. Primary and secondary thresholds and lower profits limit to be frozen in cash terms in April 2003.

Excise duties: Fuel duties frozen.

Company taxes: Small companies' rate cut from 20 per cent to 19 per cent. Starting rate of corporation tax reduced from 10 per cent to 0 per cent. Research and development tax credit introduced for larger companies at 25 per cent rate. Reform to North Sea taxation.

Tax take: £12.85bn; Tax/GDP: 36.8 per cent

2003

Excise duties: Fuel duties frozen in cash terms until 1 October 2003. Duty differential of 0.5p relative to ultra-low-sulphur fuels from September 2004.

Tax take: -£645m; Tax/GDP: 36.8 per cent

Philip Thornton

* Tax take total of measures announced in each Budget for next three years. Positive figures equals net tax take.

Sources: HM Treasury, Institute for Fiscal Studies