Budget nerves for Blair and Brown

Gordon Brown today moved to ease the pain of his tax-raising Budget this week. With only 48 hours to go, the Chancellor let it be known that drivers will be cushioned with a petrol duty freeze for the second year in a row.

At the same time, it was made clear that most of the tax rises to pay for the NHS and other key services will be delayed by at least a year.

Both moves showed signs of pre-Budget nerves, and of continuing tensions between Mr Brown and Tony Blair, said to have been in close touch over the weekend on the final details of Wednesday's package. In a sign that, with time running short, there are still serious issues to iron out, the Prime Minister and the Chancellor had a lengthy meeting at No 10 yesterday, and another today.

The Tories are already moving to accuse Mr Brown and Mr Blair of a return to Old Labour "tax and spend" - but face problems of their own over whether or not to oppose the expected tax increases.

Putting up petrol duty in line with inflation would have cost drivers 1.5p per litre and raised £560 million. But there are unmistakable signals that last year's freeze will continue in an attempt to avoid a backlash from fuel protesters at a time when Middle East turmoil is set to trigger increases in prices at the pumps.

The move will help balance out some of Mr Brown's overall package which, it is thought, will put up taxes by about £7 billion, mainly to pay for improvements to the NHS.

The Chancellor's main target is National Insurance contributions, with a likely increase in the rate from 10 to 11 per cent as well as a lifting of the ceiling after which employees stop paying it from £29,000 to about £34,000. This would mean £265 a year in extra tax for those earning £30,000 while people on £40,000 would pay £1,400 more in tax.

Rises in direct taxation for middleincome groups are a big risk for Labour, but Mr Brown and Mr Blair have prepared the way by dropping hints for months. Downing Street and the Treasury believe they have "won the argument" and that voters will accept there cannot be big improvements in the health service without a lot more money going in.

Mr Brown is also likely to protect worse-off households from his tax increases with a package of help for the "working poor" costing him about £2 billion a year.

The minimum wage is likely to be increased by between 50p and £1 an hour for childless single workers and couples.

Today's carefully-timed leak of a petrol duty freeze is designed to help cushion the overall impact of the Budget - as are other hints that the main tax increases will be deferred for a year.

Rises in National Insurance are likely to be delayed, partly for technical reasons to allow employers to change their payment systems and partly to give middle-income earners time to get used to the idea that their wage packets are to be hit.

Other possible tax rises which may penalise the better-off in the South-East include increases in stamp duty on buying homes. Lifting the rate on properties costing more than £500,000 from four to five per cent, for example, would raise £500million for the Treasury while also attempting to cool London's spiralling property market. Mr Brown will earmark the bulk of his tax increases for the NHS on the back of a major study of health funding by former NatWest Bank boss Derek Wanless, which will be published just before the Budget.

Mr Wanless is expected to claim that health has been underfunded by about £200 billion over 30 years and has been lagging badly behind systems elsewhere in Europe.

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