Brown's tax bombshell

Chancellor Gordon Brown has stunned MPs by announcing plans to cut the basic rate of income tax by 1p to its lowest level for 70 years.

The new 22p rate will be introduced next year, with a new 10p starting rate of income tax from next month.

The double tax cut sensation came at the end of his Budget speech.

'Making work pay'

Mr Brown said: "The tax cuts I have made today are tax cuts for a purpose, tax cuts that encourage work and make work pay, that help all middle and lower income families."

He said he was introducing "tax cuts for the many and not just the few and at the best time for the economy".

Lower income workers look set to benefit

The chancellor said the new 10p starting rate of income tax would be the lowest since 1962.

It will take effect on the first £1,500 of taxable income.

He added: "People will see it in their pay packets in May. Nearly two million people will see their income tax bills cut in half and take home 90p of every pound they earn."

It was his intention to give a better deal to the "hard working majority".

National Insurance reforms

Mr Brown also unveiled a raft of National Insurance (NI) reforms.

From April 2000 employees will not pay any NI contributions on earnings below £76 a week.

This is the first step in the process of aligning the threshold for employees' NI contributions with the income tax allowance.

From April 2001 a full alignment at £87 a week will be implemented, taking about 900,000 people out of the NI contributions band altogether.

John Pottage, tax partner at PricewaterhouseCoopers, said: "It's a welcome simplification to start tax and national insurance at the same level.

"Coupled with the working family tax credit, these moves will further alleviate the poverty trap and encourage those who can work to do so," he added.

The NI upper earnings limit was also raised to £575 a week.

Mr Brown also plans to cut the main rate of employers' contributions from 12.2% to 11.7% in April 2001, a move designed to offset the impact of a levy on business use of energy due to be introduced at the same time.

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