Brown to offer family sweetener

An anxious Tony Blair and Gordon Brown today moved further to cushion the impact of tax rises to be announced in tomorrow's Budget with yet more concessions for families.

The spotlight was turned to the Chancellor's promised Child Tax Credit, as it was made clear that it will give new help to a key hard-pressed group, mothers who give up work to look after their children.

It followed yesterday's pledge that petrol duty will be frozen - and the signals that tax rises, to pour billions more into the NHS and other key services, will mostly not bite until next year.

Mr Blair and Mr Brown have been holding daily Budget negotiations in Downing Street, including a lengthy session last Sunday.

With the main components of tomorrow's package already set, much of the discussion has been concentrated on ways to sweeten the pill. And Mr Brown will tomorrow make the most of the good news he has to offer, right down to tax concessions for bingo players and bikers.

Nonetheless, all the signs remain that at the heart of the Budget will be a massive new tax raid of about £7billion, much of it in the form of increased National Insurance contributions for middle-income earners.

The Child Tax Credit, costing the Treasury an estimated £3billion to introduce, will replace a complex system of benefits and credits for families.

Described by ministers as a "single, seamless system of income-related support for families with children", it will remain a means-tested way of offering help to low-income and middle-income families. But, crucially, the new means test will be based on a couple's joint income rather than the income of the highest earner.

Under present rules, if one partner earns more than £33,935, tax credit payments begin to taper off. They stop altogether if one partner earns more than £41,735. A couple where both husband and wife earn £33,000 receive the full benefit - but if the husband earns £42,000 while the wife stays at home, they get nothing.

Effectively, the stay-at-home spouse currently misses out on personal income tax allowances as well as potential earnings. The shake-up in the laws will offer some compensation.

However, critics warn that the losers under the new arrangements could be families where both the mother and father hold down jobs on, say, £30,000 a year. The new rules, to be announced by Mr Brown tomorrow, could take their joint income above the threshold to receive help.

Labour will take a huge gamble with tomorrow's Budget, in the belief that the public is prepared to accept sweeping tax rises in order to fund better public services.

Critics will accuse the Government of a return to Old Labour taxandspend. The Tories will oppose the package, arguing that there is no guarantee that higher taxes and higher public spending will bring better services.

However, ministers are convinced that they must deliver, particularly on their promised improvements to the NHS, in order to retain the support of voters.

The National Insurance rises could see the rate of employees' contributions increase from 10 to 11 per cent from April 2003, and the ceiling at which workers stop paying lifted from £29,000 to £34,000, costing higher earners £1,400 a year.

Other ways the Chancellor could raise more cash include a rise in the VAT rate from 17.5 to 20 per cent, or an increase in the stamp duty rate on homes costing more than £500,000.

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