Gordon Brown the Chancellor yesterday gave Gordon Brown the future prime minister a platform to call an early election provided he reaches No 10.

In a “give with one hand, take with the other” Budget he lopped 2p off the basic rate of income tax, with a similar cut in corporation tax from 30p to 28p. The cuts will come next April, nine or ten months after Mr Brown’s expected arrival in Downing Street, helping him to boost the “feelgood factor” if he decides to seek his own mandate from the voters in the summer or autumn of 2008. Ministers admit that this would only happen if Mr Brown secured a substantial “bounce” from the polls after his election.

He also gave himself the power to take key decisions — as future Prime Minister — about health and defence spending by delaying the publication of the three-year Comprehensive Spending Review until the autumn. In an openly political performance the Chancellor tried to outflank David Cameron by ridiculing his plans to increase tax on air travel and restore the married couples allowance.

But Mr Brown faced accusations of employing “smoke and mirrors” as he and his officials admitted that the cut in the basic rate to 20 per cent would be largely financed by abolishing the 10p starting rate of income tax — thus hitting low-earners — raising green taxes and ending the £950 million tax reliefs for empty properties. George Osborne, the Shadow Chancellor, called it a “tax con, not a tax cut”, and the Liberal Democrats said that he was in effect doubling income tax for two million of the lowest-earners.

Mr Brown, so often the showman on Budget day over his ten years at the Treasury, brought down the curtain with one final flourish, dropping income tax to its lowest rate for 75 years. This was clearly intended to reassure Middle England and symbolise that Mr Brown, having spent years trying to shed Labour’s tax-and-spend past, will not change if he becomes Prime Minister.

But the complicated set of tax changes that accompanied it overshadowed the long-expected tightening of belts over public spending. It will rise at just under 2 per cent in real terms after inflation, far below the rate through most of the Labour terms, over the next three years.

Education was given a 2.4 per cent real-term rise, lower than expected and far below the 5.3 percent a year real increases enjoyed since 1999.

Health looks set for a significant boost in the autumn. The tightening of the screws on education means that schools and university spending from 2007-08 will stand still as a proportion of national income, remaining at 5.6 per cent of GDP.

Overall the income tax cuts were worth £2.5 billion, with families with children and pensioners the obvious beneficiaries. Most low earners were compensated for the loss of the 10p rate by Mr Brown’s decision to increase tax credits — although the Tories said that 40 per cent of tax credits were not taken up, which people would now have to do to avoid cuts.

The Treasury, while stating that most households would on average be £100 better off, admitted that one in five households could lose out. These would be mainly single earners without children who did not get family-based benefits.

There were other losers from Mr Brown’s decision to simplify the tax and benefit system by aligning the upper earnings limit for national insurance contributions and the higher rate income tax threshold at £43,000.

The threshold is raised from £38,000 and the earnings limit from £33,000, meaning that people at present earning between £33,000 and £38,000 would be hit because they were not paying tax at the higher rate before. They will be compensated, but not in full, by the 2p cut in the basic rate.

A single-earner family with two children on £27,000 will be £500 a year better off; a single-earner family with two children on £36,000 would be £320 better off; and housholds with children would on average be £250 better off.

In another clearly electoral move Mr Brown announced that the threshold for paying inheritance tax would rise steadily from £285,000 now to £350,000 in 2010.

Child benefit will rise in stages from £17.45 a week for the first child to £20 a week in 2010. A staged raising of the tax-free allowance for the elderly from £7,280 to £9,770 will see 600,000 pensioners taken out of tax altogether.

David Cameron attacked the tax cut as an act of desperation. “He normally does it before a general election. But he is in such a deep hole he has done it before leadership election.”

Several economists and accountants said that Mr Brown was simply “robbing Peter to pay Paul”. The total impact was a modest giveaway of £500 million in the next financial year. In the next two years, the Budget actually raises small amounts of extra tax.

Once other measures introduced in December are considered, the overall impact of Mr Brown’s plans is to rake in an extra £2 billion or more in tax in each of the next three financial years up to April 2010.

On top of this, to finance his showcase tax cuts and make up a shortfall of £2 billion a year in revenue from North Sea tax and disappointing receipts from company tax payments, the Chancellor was again forced to push the Government deeper into the red, repeating the pattern of the past five years. While he will beat his borrowing forecast for this year by £1 billion, this was mainly owing to the Treasury undershooting planned investment spending by £3.4 billion, while spending on noninvestment overshot by £1.6 billion.

In the following four years the Chancellor is now set to borrow an extra £10 billion, taking the total deficit from 2007 to 2011 to £84 billion. This is on top of the extra £100 billion extra he borrowed over the past compared with his original intentions.

Winners

Income taxpayers: A cut in the basic rate from 22p to 20p from April 2008 — but scrapping the 10p starting rate and raising NI thresholds will dilute the impact

Companies: Corporation tax down from 30p to 28p

Families: Child benefit for a first child will rise to £20 a week by 2010 while child element of child tax credit up £150 a year from April

Heirs: Inheritance tax threshold rises from £285,000 to £350,000 in 2010

Pensioners: Scheme to help 125,000 people who lost their pensions because of company insolvency expanded from £2 billion to £8 billion

Losers

Single earners without children: One in five households will pay more tax, mainly single earners without children

Big-car owners: 4x4 owners face £300 road tax this year, £400 next year, with fuel duty rising 2p in October and another 2p in April

Small business: Tax-rate rise from 19% to 22%

Gamblers: All new casinos will face 50 per cent tax rate

Drinkers: Wine goes up by 5p, with 1p on a pint of beer and a litre of cider

Smokers: A pack of 20 cigarettes rises by 11p, but VAT on nicotine replacement products is cut to 5 per cent for a year

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