Brown: Economy brought into balance

Gordon Brown explains his budget Dur 4.40

Budget Sends Shares to Record High

After early turbulent trading saw the FTSE-100 tumble by 62 points, the index staged a dramatic comeback, touching a 112-point rise at one point before closing at the unprecedented 4831.7.

Even utilities, which might have feared a down-turn after Mr Brown's £5 billion swoop on their "excess profits" yesterday, saw investors pile in.

The bad news for home-owners is an increasing likelihood of base rates rising as early as next week when the Bank of England's Monetary Policy Committee meets to consider whether further measures are needed to cool the economy and dampen consumer spending.

The pound soared too, hitting new heights. The trade-weighted index, which measures sterling against a basket of other currencies, surged to a six-and-half year high with sterling higher agains the Deutschmark than at any time since May 1992.

But pension funds have been claiming that the loss of their tax relief on dividends could affect millions of people.

A spokesman for the former BR companies pension funds, Peter Murray, said people will have to pay more into their pension plans.

"The real companies and indeed the employees in the railway industry will have to increase their contributions to the pension schemes," he said. "So that will add to the cost of railway companies and that, inevitably, will have an effect on prices and on investment."

But the Chancellor has insisted that no pension contributor need suffer as a result of his multi-billion pound raid on pension fund dividend tax-credits.

At a Treasury briefing, Gordon Brown said his decision to cut credit on dividend payments to pension funds was "removing a bias against investment which has been built into the tax system".

The Government has also been defending its welfare to work plans. Ministers denied they were being Draconian as they announced their plans to strip jobless 18-25-year-olds of their Jobseekers Allowance if they continually turn down places on the Government's new welfare to work programme.

Opening the debate on the Budget, Shadow Chancellor Peter Lilley claimed both the change in tax credits for pensions funds and the windfall tax would hit pensions and long-term savings, he warned.

"This is a double-whammy for pension funds. It is the Robert Maxwell memorial Budget." The Budget measures were "shoddy, incomplete and ill thought-out", he said.

The former Tory Chancellor Kenneth Clarke also attacked Mr Brown's proposals in a speech in the Budget debate.

Labour's first Budget for 18 years was "eye-wateringly tough" and would prove "bad for jobs, bad for living standards and bad for Britain," he insisted.

But Mr Clarke criticised the Labour Chancellor for tightening his fiscal stance. "This was an extremely tough Budget. This was tax-raising on a grand scale," he said.