Budget: More for pensioners and inner cities, but Brown will not cut tax on petrol

Gordon Brown will pump £2bn into decaying inner cities and boost the incomes of pensioners this week but his drive to tackle social exclusion and pensioner poverty will leave no room for a cut in fuel prices.

Gordon Brown will pump £2bn into decaying inner cities and boost the incomes of pensioners this week but his drive to tackle social exclusion and pensioner poverty will leave no room for a cut in fuel prices.

The Chancellor will announce a raft of measures to revive the UK's most deprived areas when he presents his draft Budget on Wednesday. His move, which reflects concern that Britain is becoming "two nations", will reassure Labour critics who claim the Government has neglected the party's traditional heartlands.

Mr Brown will abolish stamp duty on all property transactions in deprived areas from next year at a cost of £100m. He will aim to create 800,000 newflats above shops by providing 100 per cent tax relief on such conversions. The rate of VAT on turning inner-city houses into flats will be cut from 17.5 to 5 per cent. He will also speed up tax relief for bringing urban wastelands back into use.

His blueprint will go further than the proposals from an urban taskforce chaired by the architect Lord Rogers of Riverside. Mr Brown has told ministerial colleagues: "I want more businesses, not more benefit offices, in the inner cities."

Although the Treasury's surplus this year will be much bigger than the £5bn he predicted in March, Mr Brown is expected to limit this week's giveaways to less than £5bn. If the surplus continues in the second half of the financial year, he will have room for tax cuts for low-income families in his Budget in March.

The big winners on Wednesday will be pensioners, with the basic state pension being increased in April by substantially more than inflation. It is expected to rise by £4 to £5 a week for a single pensioner and £7 to £8 for couples.

The Chancellor will aim to head off a new wave of protests over fuel prices by announcing help for hauliers and farmers. Motorists with small and medium-sized cars are expected to benefit from lower vehicle excise duty but are unlikely to win the cut in fuel duty demanded by the People's Fuel Lobby.

Mr Brown will introduce measures to cut red tape for small firms and encourage savings. People aged 16 and 17 will be allowed to open "cash Isas" and the £7,000-a-year limit for individual savings accounts will be extended for five years. A VAT shake-up will introduce a flat-rate payments system for companies with a turnover of less than £100,000; those with a turnover of less than £600,000 will have to file returns only once a year.