BROWN

(AP):

Treasury chief Gordon Brown, the man expected to succeed Prime Minister Tony Blair within months, announced surprise cuts in income and corporation taxes in his 11th - and likely last - annual budget yesterday.

As the opposition Conservative Party eats away at support for a Brown premiership, the treasurer also stressed his strong economic record, pledged more money to help overcome global poverty and attempted to boost his green credentials.

Defying economists' expectations that his final budget would be a sober affair because of skimpypublic finances, Brown instead unveiled plans for a record ?674 billion (US$1.3 trillion; ?980 billion) in government spending by 2010.

Morgan Stanley analyst David Williams said the financial package was clearly a "pre-election budget" with a number of "giveaways" to further stimulate growth.

Brown saved the best for last, announcing toward the end of his annual speech to the House of Commons that the basic rate of income tax would be cut two percentage points to 20 per cent from April next year.

He also attempted to appease the business community, which has long complained of excessive taxation, by cutting the corporation tax by two percentage points to 28 per cent.

However, several business bodies said the cut could leave smaller businesses worse off and failed to streamline the tax system.

There was also wider criticism that the headline-grabbing initiatives in the package would cost Britons more elsewhere.

"Our impression is that there is less here than meets the eye, with there being many examples of the chancellor giving with one hand and taking back with the other," said Global Insight economist Howard Archer, pointing out that Brown is largely paying for the income tax reduction by abolishing a lower tax rate category.

The spending announcements are aimed at bolstering the Labour Party's flagging popularity after 10 years in office, and mapping out Brown's plans for the country over the next several years.

Potentially more potent challenge

Blair has not yet set a definite date for his departure but has said he will leave before September. Only two other Labour candidates, Michael Meacher and John McDonnell, have declared their intention to stand against Brown, but they each need the signatures of 44 other party lawmakers to do so.

Brown is facing a potentially more potent challenge from opposition Conservative Party leader David Cameron.

An opinion poll this month by ICM Limited showed 41 per cent of voters support the Conservatives, up a point from last month, while Labour was unchanged at 31 per cent.

Backing for Brown was at 28 per cent while Cameron had 43 per cent. ICM interviewed 1,011 adults between March 16 and March 18.

In other measures, Brown committed an extra ?800 million (US$1.6 billion; ?1.2 billion) to the Environmental Transformation Fund to help combat international poverty - a cause that he has championed for months on the global stage.

He pledged another ?400 million (?587 million; US$780.5 million) for the Armed Forces engaged in operations in Iraq and Afghanistan, and ?86 million (US$168.3 million; ?126.58 million) 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 (US$980,000; ?740,000) will be exempt from land taxes until 2012.

In a statesman-like address, Brown stressed his economic record, predicting that the domestic economy will grow 2.5 per cent to 3.0 per cent in 2008 and that inflation will fall back from 2.8 per cent to its 2.0 per cent target this year and remain on target in 2008 and 2009.

"Every country has faced a trebling of oil and commodity prices," he said, adding that Britain stood alone in keeping inflation low in the face of those threats.