Brown: money to play with

The chancellor will this week put the finishing touches to a budget which is set to deliver the first "visible" tax increases since Labour came to office.

Following a PR offensive, Gordon Brown is expected to announce tax increases to fund the government's NHS reform programme when he goes to parliament next week.

Over recent months, ministers from the prime minister downwards have been preparing public opinion for a tax hike.

The government has already ruled out any changes to income tax - one of Labour's pledges at both the 1997 and 2001 general elections.

Analysts are predicting that the chancellor will opt for some modest changes to the national insurance system.

On the cards is a one per cent increase in employee and employer contributions, and a change to the payments ceiling - possibly rising from its current level of £29,900 to around £34,000.

To further soften the blow, any changes are likely to be phased over coming years.

Treasury sources say the chancellor has more money to play with than initially thought - following a quicker than expected economic recovery after September 11.

The booming housing market and the recent tax boost coming on the back of this year's substantial increase in oil prices have also added to the chancellor's cash windfall.

Initial Treasury forecasts had predicted that Brown would be forced to borrow £6 billion over the coming year.

But new data published by Barclays Capital suggests that the forecast was "too pessimistic", suggesting the final figure will be closer to £3 billion.

The new optimism is also likely to result in the chancellor giving a more generous settlement to key government departments - which had feared a tough spending round following Brown's cautious predictions.

Business, however, is also calling for a better deal from the chancellor.

In its budget submission, the CBI is today calling on Brown to ease the burden on business.

The business group is calling for an immediate reduction in taxes of up to £2 billion and a further programme to reduce business costs.

The CBI estimates that Labour's budget changes have cost business nearly £30 billion since 1997.

Digby Jones, the CBI chief, said: "The increasing tax burden is eating into the ability of firms to fund expansion, create wealth and sustain more and better paid jobs. The government must begin rolling back these costs or end up paying a high price."