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Brown, Blair in row over UK budget tax cut

LONDON: Britain's Chancellor of the Exchequer Gordon Brown and Prime Minister Tony Blair have clashed over whether or not Brown should announce a headline-grabbing cut in the basic rate of income tax in Tuesday's budget, Sunday newspapers reported.

Three papers said the two men had spent Friday discussing the budget, with Brown wanting to announce a further cut in the basic rate of tax to 21 percent to appease middle class voters hit by other tax rises due to kick in in April.

Blair, they said, preferred to increase spending further on the government's priority areas of health and education because of increasing public dissatisfaction with what is seen as the government's failure to deliver better public services despite nearly three years in power.

"Brown: Let me cut tax" screamed the front page of the Mail on Sunday which said the two men were "locked in battle" about the tax cut plans.

The Observer headlined its story "Defiant Brown to cut 1p off tax" while the Sunday Express said "Blair is taxing Brown's patience" and said the two had had a "furious bust-up".

The papers, which love stories about friction between the two top men in the government, said Brown had also been unhappy that Blair's official spokesman had last week admitted that the "tax burden" had risen for the first time. Brown was said to consider tax to be first and foremost a matter for the Treasury.

The Treasury, however, described the reports of a row as "absolute garbage". Brown announced in last year's budget that the basic rate of income tax would be cut by one percentage point to 22 percent from this April. He also slashed the starting rate to 10 percent from 20 percent last year.

Speculation is rife that he may on Tuesday announce a cut in the basic rate to 21 percent but not until April 2001, shortly ahead of the expected date of the next general election. Many pundits expect the 10 percent band to be extended.

The government has attracted a lot of criticism from the opposition Conservatives for increasing the total tax take since coming to power. The government last week retorted that it had to pay off a 28 billion pound deficit inherited from the last Conservative government.

The problem for the government now is that the economy is growing faster than expected, which tends to push up the tax burden because income tax receipts rise even more rapidly.

While Treasury forecasts in November showed the tax burden would stay around 37 percent of gross domestic product for the rest of the parliament, City economists say buoyant growth means Brown will need to trim taxes by 2-3 billion pounds on Tuesday just to hold it at that level.

The public finances are now so healthy that Brown will announce on Tuesday surpluses for this fiscal year and next several billion pounds larger than the 3.5 and 3.0 billion figures he forecast in November.

This means he has money for both tax cuts and spending increases without threatening his own fiscal rules, although he is acutely aware that a giveaway budget could provoke further interest rate rises from the Bank of England.

Otherwise the Sunday newspapers had little new speculation about the budget. Most thought "stamp duty" -- a tax on property transactions -- would rise on more expensive properties as an attempt to cool the rampant housing market.

Brown had promised a budget for work, enterprise and the family and November's pre-budget report promised a host of measures to boost all three, many of which provided a handy source of much of Sunday's forecasting.-Reuters