Treasury Chief Gordon Brown announced a surprise income tax cut as he forecast continued strong growth for the British economy in his 11th -- and almost certainly last -- annual budget on Wednesday.
Brown, who is widely expected to take over from Prime Minister Tony Blair within months, said that the basic rate of income tax would be cut from 22 pence (43 cents; 32 euro cents) in the pound to 20 pence (39 cents; 29 euro cents) from April next year.
The treasurer also cut the corporation tax from 30 pence (59 cents; 44 euro cents) to 28 pence (55 cents; 41 euro cents), while a 2 pence (4 cents; 3 euro cents) fuel duty rise expected this year was delayed for six months.
In a statesmanlike address, Brown also announced a handful of measures tackling the environment, education and global poverty that will be scrutinized for indications of the priorities of a Brown premiership.
Brown also used the speech to stress his economic record, predicting that the domestic economy will grow 2.5% to 3% in 2008 and that inflation will fall back to its 2% target this year and remain on target in 2008 and 2009.
"Every country has faced a trebling of oil and commodity prices," Brown told lawmakers in the House of Commons. "But while inflation peaked at 4.7% in America and went as high as 3.3% in the G-7, here in Britain, inflation has never gone beyond 3%, has fallen from 3% to 2.8%, and will fall further this year to 2%."
The Bank of England maintains a long-term inflation target of 2%, but inflation has increased in recent months to well above that level.
Consumer prices rose 2.8% in the year ending in February, according to the latest annualized figures from the Office of National Statistics.
Gordon Brown's Proposal
Brown's prediction is in line with comments from Bank of England Governor Mervyn King that inflation is likely to fall back quite sharply this year as lower retail gas and electricity prices enter household bills, in contrast with substantial rises that occurred last year.
Brown's term at the Treasury, making him the longest-serving chancellor since Nicholas Vansittart in the 1820s, has included 39 of the past 58 quarters of uninterrupted economic growth. He has been credited with a move away from the "stop-go, boom-bust" economic cycles of the previous decades to his catchword of "stability."
Blair has not yet set a definite date for his departure but has said he will leave before September. Only two other candidates, Michael Meacher and John McDonnell, have declared their intention to stand against Brown, but they each need the signatures of 44 other Labour lawmakers to do so. The Labour Party's ruling National Executive Committee confirmed Brown would not have to go through an "affirmation ballot" if he was the only candidate.
In other measures, Brown committed an extra 800 million pounds ($1.6 billion; 1.2 billion euros) to the Environmental Transformation Fund to help combat international poverty -- a cause that he has championed for months on the international stage.
He also pledged another 400 million pounds (587 million euros, $780.5 million) for the Armed Forces engaged in operations in Iraq and Afghanistan, and 86 million pounds ($168.3 million; 126.58 million euros) this year for intelligence and counterterrorism.
In a bid to burnish his green credentials, Brown announced that all new so-called "zero-carbon homes" worth up to 500,000 pounds ($980,000; 740,000 euros) will be exempt from stamp duty until 2012.
The budget has been partly overshadowed by an unprecedented attack on Brown's leadership style by a former senior civil servant.
Andrew Turnbull, who was the senior civil servant at the Treasury from 1998 to 2002, told the Financial Times on Tuesday that Brown displayed a "Stalinist ruthlessness" in running the Treasury department and has a "very cynical view of mankind and his colleagues."
Civil servants in Britain rarely discuss their views in public, particularly about serving Cabinet ministers, and Turnbull's comments undermine Brown's attempts to burnish his image as a compassionate statesman as he prepares to take over from Blair.