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Monday, 26 November, 2001, 16:41 GMT
Chancellor's boost for low-paid and NHS
Gordon Brown faces serious budget choices this year
Chancellor Gordon Brown is putting the finishing touches to Tuesday's pre-Budget report on the state of the UK economy, which is likely to include a significant boost for the low-paid.

What to expect
120m war costs
200 pensioners' winter fuel allowance guaranteed until next election
Rewards for pensioners with modest savings
Abolition of pools duty
Abolition of duty on small brewers
More cash for schools and hospitals in the pipeline
More help for low paid families
Mr Brown is also expected to flag up substantial hand-outs for the National Health Service (NHS) and schools in future spending decisions.

In contrast to last year's report, which included big pre-election cuts in fuel duty and an increase in the basic state pension, consumers can expect few Christmas presents from Mr Brown.

But most observers believe the chancellor will refrain from increasing direct taxation.

'Going backwards'

One of the most pressing problems for the chancellor is the health service, with a Treasury review - to be published shortly after the pre-Budget report - expected warn of the need for a huge cash injection into the NHS.

On Sunday, Labour Party chairman Charles Clarke admitted that Labour has so far failed to transform the NHS.

There have been massive improvements in some parts of the NHS but in other areas we have even gone backwards

Charles Clarke, Labour Party chairman
In a BBC Radio 4 interview, he said:
"The fact is there have been massive improvements in some parts of the NHS but in other areas we have even gone backwards."

He said that there had to be reform of the NHS as well as a cash injection - but he claimed that income tax would not have to rise.

But there are hints that Mr Brown may use the pre-Budget report to launch a debate on whether taxes should rise in the longer term in order to fund a boost to public services.

Help for the low-paid

Mr Brown is also expected to give further details of his plans to extend help to lower-paid workers without children.

A new tax credit could, from 2003, be worth up to 35 per week for childless couples.

However, the changes to children's tax credits could cost 1 million middle class households up to 10 a week - although it may take more children out of poverty.

And pensioners will also receive a boost as details of the new pensioner credit, designed to top up the income of pensioners not eligible for income support, will be revealed.

Mr Brown will announce 120m to fund the war on terrorism, with the armed forces receiving 100m and the security services 20m.

As usual, he will also have a few goodies up his sleeve - with the elimination of betting duty on the football pools and tax breaks for smaller breweries on the cards.

Growth downgrade

The state of the economy is also at the forefront of Mr Brown's concerns.

The existing forecast of estimated growth is almost certainly to be revised down, following a worsening of the global economic slowdown in the wake of the 11 September attacks.

As the result, the government is likely to have a deficit of some 10bn, and for the first time have to admit that its forecast for public borrowing will be worse than expected.

Some experts expect Mr Brown to reduce his predicted forecast for economic growth next year to 1.5%-2% from the existing range of 2.25%-2.75%.

But the chancellor's view on the Britain's longer-term economic health is likely to remain positive, with a wealth of recent economic data suggesting that the UK is performing better than its peers.

The Organisation for Economic Co-operation and Development has endorsed that view in its annual survey of the UK economy.

But it warns of the increased risks, particularly for the over-valued pound, which could still blow the chancellor off-course.

British businesses are expected to get a helping hand as firms forge a survival path during these troubled times.

Helping industry

Capital gains tax, for example is likely to be overhauled in order to reduce the tax payable on shorter-term gains.

And a simplification of VAT rules will help small business cut back on red tape.

Gordon Brown
Gordon Brown will take centre stage on Tuesday

The business community is also calling for a tax credit on research and development (R&D) in order to maintain Britain's competitiveness in the long-term.

The Confederation of British Industry's Digby Jones points out that R&D and training are often the first victims of the slowdown, but desperately need to be maintained in order to keep attracting foreign investment to the UK.

Shadow chancellor Michael Howard also highlighted the need for improvement in this area, saying that the UK has slipped from ninth to 19th in the world competitiveness league.

"If British firms can't win the orders and create the jobs, we don't have the resources... for our public services, and we will all be very much worse off," Mr Howard told the BBC's Breakfast with Frost programme.

'Complicated system'

Lib Dem Treasury spokesman Matthew Taylor MP, attacked the complexity of Mr Brown's tax system.

"The Chancellor's attachment to pet tax schemes that do little to help and much to hinder business has given Britain one of the most complicated tax systems in the world, at huge cost to the economy.

"All the indications are that the Chancellor intends to add yet further complications in the pre budget report - instead he should announce that he will take a knife to the tax book and cut it at least to the level he inherited in 1997."

The BBC's Mark Mardell reports from Downing St
"The Prime Minister's spokesman... said there were pockets of failure within the National Health Service"
The BBC's John Pienaar
outlines what is expected in the pre-Budget report
See also:

22 Nov 01 | Business
The chancellor's choices
20 Nov 01 | Business
What is the pre-Budget report?
23 Nov 01 | UK Politics
Brown takes centre stage
16 Oct 01 | Business
Brown and the downturn
26 Nov 01 | Business
Cautious thumbs-up for UK economy
27 Nov 01 | Health
NHS funding 'must rise'
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