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Monday, March 8, 1999 Published at 17:59 GMT

Budget rumours ripen

Families may be set for a Budget reprieve...

A reprieve for family payments, further moves towards a new 10p tax rate and a boost for business competitiveness are the measures commentators are backing in Tuesday's Budget.

BBC Economics Correspondent Ed Crooks: Drivers and smokers are set to lose out
As the hour approaches when Chancellor of the Exchequer, Gordon Brown, hands down his economic blue print for 1999, the catalogue of rumoured initiatives ranges from the realistic to the ridiculous.

As the weekend press unleashed another wave of speculation, former chancellor Ken Clarke accused the chancellor of orchestrating a string of mischievous Budget leaks.

[ image: Gordon Brown: Accused of Budget leaks]
Gordon Brown: Accused of Budget leaks
But the latest hint on Budget direction came in a Sunday speech by Mr Brown where he reaffirmed a commitment to a policy to help families.

Political commentators say this will make it hard for him to cut family payments in measures many have suggested will be in his Budget.

In a speech at St Paul's Cathedral on cutting Third World debt, Mr Brown said: "Supporting families and supporting children is not only good in itself but the best investment for any country in its future".

Two heavily-rumoured measures that now might not come to anything in light of the chancellor's comments involve child benefits and married couples allowance.

It has been suggested child benefit payments may be taxed for higher income families while the married couples tax allowance may be cut back.

Married couples' tax allowance is already set for a one-third cut announced last year, while child benefits are to see a 2.50 a week lift.

Where will the cuts come?

However, with the government's commitment to move towards a new tax rate band of 10p in the pound for lower income earners it has been thought the area of family payments is ripe for savings.

Mr Brown's pro-family comments have intensified speculation over cutbacks in other areas needed if the government is to pay for the new lower tax rate, especially if it replaces altogether the current 20p marginal tax rate.

The abolition of the mortgage interest relief scheme (Miras) giving tax deductions to home buyers now heads the list of speculated cutbacks.

A lowering of the income levels where the higher 23p and 40p tax rates come into play has also been floated as a way of reducing the cost to the government of the new 10p rate.

On the plus side for workers, the BBC's Economics Unit believes the floor under which employees do not have to pay National Insurance contributions may well rise to 83 in earnings a week from 65.

However, the onus on the self-employed to contribute is expected to rise above the current 6.35 a week plus 6% of profits - and the rise may be significant.

Growth fears

Also under a question mark are the government's revenue targets, which many analysts say will be hit by the sharp slowdown in the economy predicted this year.

However, BBC Economics Reporter Chris Giles says he believes the chancellor is ready to stand by official Treasury forecasts of 1% to 1.5% growth in the economy in 1999.

His promised 40bn in extra health and education spending in coming years hinges on official growth forecasts and the tax revenues they would bring.

Other economists, including those at the International Monetary Fund, predict UK growth to fall well below 1% which would hit tax revenues and cause a blow-out in spending on unemployment benefits.

Competitiveness boost

As far as business is concerned, the more level-headed analysis is that this will be a Budget of small measures to boost overall competitiveness in UK industry, rather than any blockbuster initiatives.

Tax concessions for research and development and allowing small businesses to sell tax losses may well be among a raft of piecemeal measures in this area.

However, environmental measures touted would work against business if they become a reality. They include the much-anticipated energy tax on industry and a reworking of the taxation of company car use which currently encourages greater car use, not less.

Already announced is an increase in taxes on petrol which will see 5p added to the litre price from Budget night. However, Gordon Brown would not be the first chancellor to opt for a bigger rise than first announced.

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