Brown may bring in massive tax cuts

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Mr Brown fuelled expectations of tax cuts in the upcoming Pre-Budget Report when he said there was an "emerging consensus" internationally on the need for fiscal policy to support the interest rate cuts announced by the Bank of England and European Central Bank.

He and Chancellor Alistair Darling have repeatedly stated that now is not the time to take money out of the economy, as businesses look for consumer spending to maintain growth.

The Treasury refused to comment on the contents of Mr Darling's PBR, due within the next few weeks, and dismissed as "speculative" a report in the Financial Times which said he was considering an emergency package of tax cuts and public spending.

But the Sunday Mirror quotes an unnamed "senior ministerial source" as saying: "There's going to be a major package of tax cuts and public spending.

"We're not trying to spend our way out of trouble, but urgent action is needed to stimulate the economy. We're talking about measures totalling between £10 billion and £15 billion."

The paper suggests Mr Darling could increase tax credits for low-income families, extend the stamp-duty "holiday" on less expensive homes, boost the winter fuel payment for the elderly, delay planned hikes in petrol duty or even cut the basic rate of income tax.

Meanwhile, the Sunday Express predicted tax cuts worth an average of £480 to every household in the country, quoting an unnamed minister as saying: "Public finances are tight but tax cuts can be justified in the current circumstances. We have to find a way of putting money into people's pockets because they are really hurting."

With Mr Brown making clear he does not plan to cut back on public spending, any tax reductions are likely to have to be funded from borrowing, raising the spectre of tax hikes after the current economic downturn has concluded.