Brown poised to raise minimum wage

Gordon Brown is set to please Old Labour and the unions in next week's Budget with a rise in the minimum wage.

The Chancellor is poised to approve an increase of seven per cent, far above inflation, taking the rate up by 35p an hour to £4.85.

He is also expected to boost the minimum rate for 18 to 21-year-olds by 30p, to £4.10 an hour and bring in for the first time a minimum wage for 16 and 17-year-olds.

The move will be one of the major "good news" elements in next Wednesday's package.

It could help to off-set the expected tide of stealth taxes which the Tories and others have warned will be needed to fill a £10 billion "black hole" in the Government finances.

The increase in the minimum wage will boost Mr Brown's credentials with the unions and the Left as a fighter for the party's traditional values.

The Chancellor will point out that the rise, based on recommendations from the Low Pay Commission, is the second year running that the increase has beaten inflation.

He faces trouble on a different front, however, as it emerged that Tony Blair has been asked to overrule the Treasury over a planned cut in defence spending.

The rare challenge to Mr Brown's authority is said to have come from Defence Secretary Geoff Hoon.

A report today said that Mr Hoon had written to the Prime Minister to protest at a demand for £1.2 billion in cuts. His letter is said to warn that the squeeze will put " current and future" military operations at risk. The Chief of the Defence Staff, General Sir Michael Walker, is said to have voiced "profound unhappiness" to Downing Street.

Mr Hoon's readiness to go over Mr Brown's head could foreshadow big trouble for the Chancellor. Mr Brown is already squaring up for the real battle with defence and the other big Whitehall departments in the negotiations-over the Government's spending plans for the next two years. That confrontation will begin after the Budget.

Mr Hoon's appeal also puts the Prime Minister in a difficult position.

Mr Blair has been at pains to show strong backing for the armed forces. But he has also appeared to make peace with Mr Brown, a ceasefire which could be imperilled if he is seen to overrule the Treasury.

Mr Brown was under pressure on another front today, with a warning not to punish homeowners in the Budget after figures suggested British housebuyers are paying more than twice the EU average in tax.

The Council of Mortgage Lenders called on the Chancellor to reaffirm the pledge that the Government would not slap capital gains tax on the profit from the sale of a main home.

There are fears of another rise in stamp duty.