IN what is likely to be his last Budget, Chancellor Gordon Brown cut the basic rate of income tax by 2p to 20p from April 2008.

But the headline-grabbing move was offset by the removal of the 10p lower-rate of income tax.

Delivering his 11th Budget Speech to the Commons, Mr Brown told MPs his measures would deliver on "fairness, families and the future".

He said the Budget's major aims were:

  • promoting long term investment and environmentally sustainable growth
  • encouraging and rewarding work and savings vital to the week-to-week prosperity of every family in Britain
  • supporting and strengthening families.

Mr Brown said: "My report to the country is of rising employment and rising investment; continuing low inflation, and low interest and mortgage rates.

"This is a Budget to expand prosperity and fairness for Britain's families -and it is built on the foundation of the longest period of economic stability and sustained growth in our country's history," he said.

KEY BUDGET POINTS:

Cars Mr Brown outlined an objective for Britain to have the lowest carbon cars using the least polluting fuels. He said: "I am extending to 2010 the biofuels duty differential worth 20p per litre, a fuel duty discount of 40%, and I am also extending to 2012 the biogas incentive worth 40p per litre, a discount on fuel duty of over 80%."

Excise duty rates will be cuut for vehicles in band B from a top rate of £50 down to £35, while the top band for big vehicles which use a lot of fuel would rise from £300 and £400 next year, Mr Brown said.

The chancellor announced fuel duty will rise by 2p a litre, for 2008 a further 2p, and for 2009 1.8p. But he deferred the first rise by six months. He also ruled out putting VAT on airline tickets.

Alcohol From midnight on Sunday, beer will rise by 1p a pint, cider by 1p a litre, wine by 5p a bottle and sparkling wine by 7p. But duty on spirits will be frozen, the 10th consecutive year this has happened.

Tobacco From 6pm tonight the annual inflation rise on a packet of 20 cigarettes would be 11p. The chancellor also tried to encourage people to quit by cutting VAT on nicotine patches and other tobacco cessation products from 17.5% to 5%.

Gambling The bottom two rates on gaming duty would be aligned at 15%, and for the largest casinos set a 50% rate.

Families The Chancellor said he was investing over £1bn a year in raising the value of the working tax credit and would extend the £40-a-week in-work bonus paid to lone parents for their first 12 months in work.

Inflation Mr Brown told the Commons the inflation was under control in Britain and that its economy was growing faster than all the other G7 economies.

"While inflation peaked at 4.7% in America and went as high as 3.3% in the G7, here in Britain, inflation has never gone beyond 3%, has fallen from 3% to 2.8%, and will fall further this year to 2%. Our forecast and the consensus of independent forecasts agree that looking ahead to 2008 and 2009 inflation will also be on target," he said.

Business investment Mr Brown said business investment was forecast to rise again by more than 7% and that growth was expected to be between 2.5% and 3%, with the same rate of growth expected in 2009.

Economic forecast Mr Brown boasted that Britain had met the "golden rule" for the first time in four decades and that, in the economic cycle, the Government had not only balanced current spending and revenues but was able to report a surplus of £11bn.

Tax revenues from North Sea oil have falled from £13bn to £8bn due to much lower levels of production and higher costs, the chancellor said.

Debt Debt was 38.2% of national income in 2007-8 and predicted to reach 38.6% by 2012. This compared to 44% of national income in the USA, 50% in the euro area, and 92% in Japan, Mr Brown said.

Borrowing Net borrowing would be 2.7% of national income this year.

Mr Brown said: "Compared to a deficit equivalent of over £100bn in a single year in the early 1990s, the figure for this and future years will be £35bn - over one billion less than forecast at the Pre-Budget Report."

Asset sales rose from £18bn to £36bn.

Mr Brown said that £26bn a year would be released for frontline services by the financial year 2010-11, after efficiency savings of 3% each year were achieved.

Invstment Three quarters of new spending would go on frontline services, the chancellor said. Mr Brown said capital investment in schools, hospitals, security and defence and infrastructure, had risen from £18bn in 1997 to £43bn this year. He said this would rise to £48bn next year then to £52bn, £55bn, £57bn and £60bn in subsequent years.

Total expenditure will rise from £552bn this year to £587bn next year and then rise to £615bn in 2008. In 2009 it will rise by another £29bn to £644bn and then in 2010 by an additional £29bn to £674bn.

Security Mr Brown announced an additional £86m this year for intelligence and counter-terrorism, saying that Britain's security would be put first.

He said: "We owe a huge debt of gratitude to our armed forces. And to support those who serve us with courage and distinction in Afghanistan, Iraq and in other demanding international commitments, I am allocating the secretary for defence an additional £400m."

NHS Mr Brown said investment in the NHS would rise by £8bn this year, or 7% in real terms, representing the biggest-ever cash increase for the health service.

Economy Mr Brown said the changes announced today would be "broadly neutral" for the public finances, meaning that he would be taking roughly the same amount out of the economy as he was putting into it.

He said that, with the economy growing faster than any other major economy, this was not the time for "a fiscal loosening". But he said that the reforms announced in the budget would "prepare and equip Britain" for all the challenges ahead.

Science Investment in science would rise to £6.3bn billion by 2010-2011, a 25% increase, Mr Brown said.

The capital allowance system would be simplified into just two categories based on how long an asset will actually last.

Business tax Corporation tax would be cut from April 2008 from 30p down to 28p, which Mr Brown said was the lowest of all the major economies.

To reduce the tax difference between self employment and small company incorporation, he said He told the House he would raise the small companies' rate in three stages from 20p this year to 22p in 2009, and that all these revenues would be "recycled" to ensure that small businesses are investing for the future.

Small firms will be able to claim a new 100% relief for new capital investment up to £50,000.

Mr Brown said details of a new Northern Ireland innovation fund, to ensure industry and jobs are available, will be announced tomorrow.

Africa Mr Brown announced a £50 million for an initiative in central Africa to prevent the destruction of the world's second largest rainforest.

Environment The chancellor said £800m would be allocated to the Government's environmental transformation fund.

Mr Brown announced grants of £300 to £4000 would be made available to pensioners to help them instal central heating and insulation in their homes. From next month microgeneration grants for homes would increase by 50% to £18m and until 2012 all new "zero carbon homes" valued at more than £500,000 would be exempt from stamp duty.

The support and incentives available to small businesses for environmental improvement, innovation and energy audits will rise from £140m this year million to £240m in the coming year, Mr Brown said.

Mr Brown announced two measures that he said would cut carbon emissions by 16 million tonnes: landfill tax will rise by £8 each year between April next year and 2011 and the aggregates levy on quarrying will rise in April 2008 from £1.60 to £1.95 per tonne.