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Brown set to play safe

The UK is enjoying its longest period of sustained low inflation since the 1960s, interest rates are at their lowest for the longest period since 1970 and there is a surplus in public finances.

Historically, this would have provided an opportunity for a Chancellor to take a few risks to produce a desired election result. But Gordon Brown has sought to dampen hopes of a pre-election spending spree.

He argues that a disciplined approach to tax and spending is the best way to achieve a stable economy.

Brown&#39s fifth Budget is therefore likely to include targeted tax cuts. Likely beneficiaries are families, pensioners, low-paid workers and savers and maybe drivers and farmers. With this in mind, I expect:

l Children&#39s tax credit (which kicks in on April 6) – a reasonable increase of as much as an extra £1.50 a week, together with further initiatives to ensure the take-up of this benefit.

l Pensions – above-inflation increases this year after last year&#39s much-derided 75p a week increase.

l Income tax – an above-RPI increase in the 10 per cent band to benefit those on low incomes and an above-RPI expansion of the basic-rate band. A further cut in the basic rate may be in the wind to launch the election campaign with a bang.

l Stamp duty – a possible reduction in the rate paid on share purchases, perhaps halving it from 0.5 to 0.25 per cent, to encourage investing.

I also expect changes to the long-term care rules and inheritance tax levels.

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