THE British Chancellor of the Exchequer, Mr Gordon Brown, will today describe his first Budget as a "five-year deficit reduction plan" as he reveals a rise in net taxes in the current year of more than Pounds 2 billion and significantly bigger increases in succeeding years.
The chancellor will say that this first budget produced by a British Labour government in two decades is "tough". Its most contentious measures are expected to include the abolition of the 20 per cent tax credit on dividend payments, a reduction in mortgage interest relief and a doubling to 2 per cent in the stamp duty levied on sales of expensive homes.
Also likely is a sharp increase in the duty on petrol, which may be portrayed as a "green" measure, and a generous package of tax incentives for corporate investment.
There was optimism in the markets yesterday that Mr Brown would tackle concerns about escalating British inflation, with tax rises aimed particularly at the personal sector.
The FTSE 100 index rose 123.7 points to close at 4,728.3 - a 2.7 per cent rise on the day. This was the largest daily increase since the Conservative party won the general election in 1992.
Traders said some of the rise in share prices was due to rumours - believed to be ill-founded - that the government had dropped its plan to abolish the dividend tax credit, a move which would cut pension funds' income by an estimated Pounds 3.5 billion sterling.
A senior member of the government said "the markets are bonkers" and "we are pressing ahead".
The gilt market also surged, as British long-gilts closed 11/16 up at 114 5/8.
Government calculations of the overall rise in net taxes thought to be in the range of Pounds 2 billion sterling to Pounds 3 billion - do not include proceeds totalling at least Pounds 5 billion of a windfall tax on the privatised utilities.
This figure is excluded from Treasury assessments of the relative tightness of the budget because it is a one-off measure whose proceeds will be eked out on employment initiatives over the lifetime of the parliament.
In a first leak of individual utility companies' liability to the windfall tax, it emerged that BAA, the airports operator, will pay about Pounds 150 million sterling.
The chancellor said yesterday that his budget would "be about equipping this country for the future" and "meeting the people's priorities".
He will be concerned not to be seen to be breaking the spirit of his pre- election pledge that he would not raise income tax rates. A start may therefore be made towards establishing a new top bottom rate of tax in spite of widespread speculation that this would be delayed to a later budget.
According to a government member, the chancellor's main aims will be:
(a) the "restoration of sound public finances" to produce "fiscal stability";
(b) the encouragement of corporate investment;
(c) the choking-off of inflation in the housing market;
(d) the reduction of unemployment among the young and long-term unemployed through a Pounds 3 billion "welfare to work" programme.
Probably the most controversial planned budget measure is the abolition of the 20 per cent tax credit on dividend payments. In a full year, this measure would increase government revenues by Pounds 5 billion a year, with an estimated Pounds 3.5 billion coming from pension funds.
It is this move more than any other which would accelerate the speed at which the public borrowing requirement falls to zero, but it has been under attack from those tax-exempt investors who would suffer most, mainly the pension fund industry and charities.
Mr Brown will hope to demonstrate the government's commitment to helping the corporate sector by boosting the tax relief available for investment in plant and machinery.
