Gordon Brown says he has locked stability into the British economy, insisting his spending plans are sustainable.

Announcing up to 40,000 civil service job losses, the chancellor said the purpose of the Budget was to "lock in stability" for the country as a whole.

On the back of the "stable economy", Brown said it was time to "combine a new British confidence with a new resolve to make the right choices and reforms".

But responding to the Commons statement, opposition leader Michael Howard accused the chancellor of running up a "mountain" of debt.

Said Howard: "If everything is going so well why is he borrowing so much?"

"This is a credit card Budget, from a credit card chancellor," he added.

Public service reform

In a 56-minute speech, Brown made the case for wholesale modernisation of the civil service - as the leaked details of the Gershon review had predicted.

Across Whitehall, Brown said he wanted to reduce back office costs - with job losses in departments including work and pensions and the Inland Revenue.

Reform of Whitehall would boost effective front line services "by £20 billion a year by 2008", the chancellor told MPs.

And he gave his support to the transfer of 20,000 civil jobs from London to the regions following the Lyons review.

Brown also gave the government's backing to moves to increase affordable housing in property hotspots following the publication of the Barker review this morning.

He confirmed that he would consult on plans to impose a windfall tax on the profits made from the sale of land for development.

And he announced plans to merge Customs and Excise and the Inland Revenue - a move which will streamline the tax collection process and lead to over 10,000 job losses.

Finances tight

The Budget comes at a difficult time for the chancellor - now in his seventh year in the job - with the public finances tightening.

He said growth in the economy would strengthen over the course of the coming year - with the economy growing by three to 3.5 per cent in 2005.

But ahead of what ministers accept will be a tough spending round, the chancellor mounted a stout defence of his management of the economy.

"Our foundation: economic stability," he said. "Our achievement: sustained growth. Our choice: more investment not less. Now and into the next parliament. Our prudence is for a purpose."

Spending plans

Brown said that his spending plans are affordable and consistent with his rules for public borrowing and debt.

And he said it was right to borrow over the course of the economic cycle - to "borrow for investment".

In an upbeat assessment of his economic management, the chancellor said that the UK has weathered the world downturn.

He said it was "in the national interest" to borrow for investment.

"It was in the national interest firstly, to follow rules on debt and cut debt in the late 1990s, secondly, to enable fiscal policy during the recent world downturn to support monetary policy, and thirdly, now and in the future, on the basis of low public debt, to borrow for investment to strengthen our economic fundamentals," he told MPs.

Pointing to on-target inflation he said that the UK has been the most stable of all major industrial economies.

The chancellor said he had "sustained growth...without suffering the old British disease of stop, go".

"Britain is enjoying its longest period of sustained economic growth for 200 years," he said.

Brown said Britain was no longer "first in, worst hit, and last out" when recession hits the European economies.

And he insisted that his growth forecasts, seen by many as over-optimistic, have come good.

Euro hopes dashed

Brown also signalled that Britain remains as far removed from the single currency as ever - ruling out a rerun of the five test assessment this year.

Instead he pledged to hold an annual review of his criteria - a move which highlights the differences between the prime minister and his chancellor.

Brown is also set to target corporate tax avoidance in a bid to maximise the Treasury's take. Areas where a crackdown is expected include partnerships, leasing deals and VAT avoidance.

An onslaught against accountancy firms which advise clients on how to utilise lucrative tax loopholes is to be launched, the chancellor signalled.

Measures to put those who make money out of internet gambling sites on the same footing as bookmakers were also announced by Brown.

Sin taxes

But those expecting substantial increases on taxes on alcohol, cigarettes and fatty foods so close to an election were left disappointed.

A pint rises by one pence, a bottle of wine by four pence - whilst duty on spirits is frozen.

Smokers get hit by an inflation-linked increase of eight pence per packet.

Stamp duty is frozen following fears the further burdens following recent interest rate rises could push the sector into a downward spiral.

Drivers who opted for cleaner Liquid Petroleum Gas-fuelled vehicles have, however, seen a four-year duty freeze brought to an abrupt end.

Neutral

Whilst the pundits will pore over the red book before making a final assessment of the 2004 Budget, there were few unexpected fireworks on the face of the statement.

Pensioners will receive an additional annual payment of £100 but overall there were few surprises.

In conclusion the chancellor said his fiscal projections were unchanged from the pre-Budget report.

The decision today, he told MPs, was between "cutting tax rates" and increasing investment in public services.

With a general election looming, Brown was unlikely to make any radical changes.

Stability was his purpose, and steady was how he went.

That led Michael Howard, however, to suggest the real fireworks may come in "third term tax rises" from the chancellor and his government.