Brown's reward for thrifty pensioners

MILLIONS of pensioners with modest private savings will be given extra cash by Gordon Brown on Tuesday. Those who saved during their working lives are to be rewarded by the Chancellor for their prudence - and without the hated annual means test. Pensioners will have their eligibility for the extra cash scrutinised by the Inland Revenue once every five years instead.

Brown will unveil details of the planned 'pensioners' credit' as the centrepiece of a Pre-Budget Report which will also feature extra money for the war on terror, and a gloomier growth forecast.

Currently the worst-off pensioners are eligible for the Minimum Income Guarantee, topping up their incomes to an upper limit of £92.15 for a single pensioner from 6 April and to £140.55 for a couple. But those who built up modest savings or small occupational pensions taking them up to that level already, receive nothing apart from the basic State pension of £72.50 a week or £115.90 for a couple, leaving them in a classic benefits-style trap.

When the new pensioners' credit comes in from April 2003 the Government will top up the incomes of all single pensioners to an upper limit of £135 and £200 for couples. But it will also aim to help those with modest savings or occupational pensions out of the means-test trap, by giving them a further 60p for every pound of their extra income up to that limit.

The 40-page application form will be reduced to a few sheets which can be completed-over the telephone. And a dedicated unit will be set up in Whitehall to offer pensioners the new credit, in an attempt to end the scandal under which hundreds of thousands of pensioners fail to claim their entitlement. Brown calculates that the shake-up should mean an extra 3.8m pensioners will benefit.

The Chancellor will also announce that pensioners are to be given £200 each winter until the next General Election, probably in 2005.

He will also announce an emergency £ 120m towards the war on terrorism - £100m to provide extra equipment for the Armed Forces and £20m for the security services to help track down terrorist finances. On the domestic front he will press ahead with targeted tax credits to get the worst-off into jobs.

Some Labour insiders argue that voters would prefer cash to be spent on the beleaguered public services. But the Chancellor will publish new legislation enabling the Government to implement employment and child tax credits in 2003. He will also publish a British Social Attitudes Survey showing 71% back the idea of topping up incomes through wages.

Two expected populist moves will be an excise duty cut for small brewers who currently pay the same rate per pint as big brewers, and the scrapping of VAT on football pools, putting them into line with other betting.

Brown is also expected to pave the way for substantial increases in taxation over the next 20 years in an attempt to raise hospitals, schools and transport to the standards demanded by the public. He will revise his forecast for Britain's economic growth in the year ahead downwards by 0.5% to between 1.75% and 2.25%, admitting that the downturn is biting harder than expected. As a result he will declare higher than previously predicted deficits for the next two years.

He will suggest that long-term tax rises are on the cards by publishing a fundamental review of the NHS alongside his pre-Budget report. The review by former NatWest bank chief executive Derek Wanless concludes that the health service needs billions more to end half a century of under-funding. However, the Chancellor is expected to signal that he will avoid raising overall taxation in his Budget next spring.