Our golden rule won't be broken - Brown

Gordon Brown turned prudence on its head yesterday by announcing a massive increase in government borrowing to prevent the British economy from being blown off course.

Alongside the much bigger than expected increase in borrowing, the Chancellor also unveiled a series of measures to promote enterprise and employment, curb VAT fraud, boost the incomes of pensioners and low-paid families and further advance the Government's green agenda.

Faced with much slower economic growth than expected and a sharp decline in tax revenues, the Chancellor intends to borrow £20bn more over the next two years than he forecast in April's Budget. Nevertheless, Mr Brown insisted that he would remain well within his golden rule of borrowing only to invest, while balancing the public finances over the economic cycle.

The Chancellor's determination not to allow the UK to succumb to a global recession, which has afflicted the 20 biggest economies including the US, Japan and Germany, was coupled with a stark warning to public-sector workers.

With inflation and long-term interest rates at a 40-year low and unemployment at its lowest for 25 years, the Government said Mr Brown "will tolerate nothing that will put our hard-won stability at risk".

The wide array of measures to promote wealth creation include the designation of 2,000 Enterprise Areas where businesses will be exempt from stamp duty, eligible for grants and tax breaks and freed from some planning restrictions. The Chancellor is also extending the small firms loan guarantee scheme and abolishing royalty payments on North Sea oil revenues.

With the carrot comes the stick and Mr Brown announced a crackdown on VAT fraud and avoidance, which is designed to save more than £2bn, and measures to tax City bonuses, which will raise an estimated £435m by 2005-06 by closing loopholes in current employee benefit schemes. As is the Chancellor's style, his pre-Budget statement also flagged up a welter of new reviews and task forces. There will be a review of the UK's performance on innovation and collaboration between businesses and universities carried out by the former Financial Times editor Richard Lambert. There will also be a review of employers' liability insurance after complaints that a sharp rise in premiums in the past 12 months has forced many small firms to stop business or trade illegally without the required cover.

Sir Roy Gardner, chief executive of the gas supplier Centrica and chairman of Manchester United, will chair a task force into the expansion and improvement of modern apprenticeships.

If one of the Chancellor's watchwords during his five-and-a-half-year tenure has been "enterprise" then the other has been "fairness", and this year's green Budget sets out further measures to boost the incomes of working families and pensioners.

Alongside an extension of the working families tax credit, the Chancellor also announced plans to improve the work-life balance. The Government is to consider fresh tax breaks for child care for both employers and child minders and increased flexibility to allow fathers time off to attend ante-natal classes.

For pensioners, Mr Brown announced an extra £2bn in pension credits from next October which, he said, amounted to the biggest increase in pensions since the old-age pension was introduced.

For a pensioner couple on an income of £150 a week, it will mean an extra £21.50 or £1,100 a year. For a single pensioner on £110 a week, it will mean an extra £11.60 or £600 a year on top of next April's pension increase.

In addition to the big increases in funding for health and education announced back in April, the Chancellor also nailed his colours to the mast of a big expansion in overseas aid. He said that Britain was proposing an international finance facility to double the amount of aid for developing countries from $50bn (£32.3bn) a year to $100bn a year by 2015.

The Government's green programme took another step forward with the publication of a wide-ranging paper on the contribution that could come from environmental taxes. The paper looks at the increased use of fiscal measures to promote household energy efficiency and tackle the environmental impact of the agricultural and aviation industries.

The Chancellor also unveiled two new green tax measures – a £3 per ton increase in the landfill tax from 2005-06 and a new rate of duty on bioethanol fuel for cars set at 20p less than the duty on ultra-low sulphur petrol.

There was less in the Chancellor's statement than some pundits had predicted. He decided, for instance, not to touch tax reliefs on pension contributions and the tax-free lump sum and we will have to wait until mid-December for the much-anticipated Green Paper on private pension provision.

The reaction from business was one of guarded relief while the unions responded by welcoming Mr Brown's statement.

The CBI's director general, Digby Jones, said business would be "relieved but wary" that the Chancellor had decided not to ratchet up the tax burden on business further.

John Monks, general secretary of the TUC, applauded the Chancellor's pledge of sustained increases in public spending and the boost to those on low incomes.

MAIN POINTS

PUBLIC FINANCES
The Chancellor cut his growth forecast for this year to 1.6 per cent, compared with the Budget forecast of 2 to 2.5 per cent, rising to 2.5 to 3 per cent next year and 3 to 3.5 per cent the year after. Net borrowing is forecast to rise to £20bn this year, compared with earlier predictions of £11bn, and £24bn the next. Inflation is expected to meet the Government's target of 2.5 per cent this year, while business investment is forecast to rise by between 2.75 and 3.25 per cent next year.

PENSIONS
Existing tax reliefs on pension contributions and the tax-free lump sum paid to retirees will remain when the Government's Green Paper on pensions is published next month.

TRAINING AND SKILLS
Manchester United's chairman, Sir Roy Gardner, is to head a new task force on apprenticeships. Another £60m has been pledged to ensure pupils leave school with at least five days' work experience by 2005-06. Employers will also be encouraged to allow staff to have time off for training. And the Government's scheme of issuing work permits to skilled migrants will be extended to help smaller firms to recruit workers from overseas.

ENTERPRISE
Gordon Brown earmarked £75m over three years to promote enterprise education in schools. Pilot schemes are due to start next year. He also announced plans to press ahead with cutting stamp duty on business property sales to zero in Enterprise Areasfrom the date of the Budget next year.

ENVIRONMENT
The Government is proposing to increase landfill taxes by £3 a ton by 2005-06. Duty on bioethanol road fuel will be cut by 20p a litre.

WELFARE
The tax credit scheme will be extended from April to childless couples and single people with wages below £280 and £200 a week respectively. From next October, pensioners with incomes below £139 a week (£200 for couples) will benefit from new tax credits worth a total of £2bn. The Government is considering tax and insurance incentives for employers' childcare schemes, and increasing flexibility in time off for parents, including allowing fathers time to attend antenatal appointments.

BUSINESS
The small firms' loan guarantee scheme will be extended while the Government is looking at easing the requirement on smaller businesses to detail VAT transactions and hold statutory audits. The Department of Work and Pensions will review employers' liability insurance. Royalties on North Sea oil and gas will be abolished from January. Duty on bingo players' stakes will also be abolished.

INTERNATIONAL AID
The Chancellor is championing the idea of an international finance facility that will aim to double global aid to $100bn a year by 2015.

VOLUNTEERS
The Government is considering a scheme based on the US's "Americorps" system to help finance school leavers from lower-income backgrounds to take a "year out" doing community service.