GORDON Brown today defied predictions of gloom by freezing tax on spirits, adding only 1p to a pint of beer and predicting a rapid upturn in the UK economy.

Shaking off predictions of a grim budget, the chancellor also kept the tax increase on cigarettes to 8p per packet and wine 4p per bottle - with tax on cider frozen.

Car tax went up by £5 but was frozen on bikes and lorries. He also scrapped the tax paid by bingo players, instead shifting to a charge on the profits of bingo hall managers.

In a 59-minute speech, Mr Brown deferred any rise in petrol for six months until uncertainty caused by the Iraq war was over.

Single pensioners on just £139 per week will get at least an extra £7 per week from a new "pensioner Credit". Couples on £209 get at least an extra £9.

To cheers, he announced cash will no longer be deducted from pension payments when the elderly are in hospital. The winter fuel payment for those over 80 increases by £100 to £300.

He confirmed a £3 billion special reserve fund for the Armed Forces and £240m for the reconstruction of Iraq and humanitarian aid. There was also £330m to protect against the terrorist threat to Britain.

In his seventh Budget, Mr Brown said he was also considering extra scientific research credits and announced a raft of tax breaks for small businesses, coupled with the abolition of 500 regulations in response to criticism of Government "red tape".

Other measures included an aid package for all new parents, with a kick-off for the Government's long-awaited Baby Bonds.

The Chancellor will give £500 for each baby, with with the cash placed in a savings fund and sealed until they are 18. Better-off families will receive £250.

He promised more help for lone parents working part-time and families on low incomes.

Mr Brown was forced to downgrade his predictions for growth in the economy this year - but surprised analysts by increasing his predictions for 2004 and 2005.

An upbeat chancellor insisted interest rates and inflation at a historic low and jobs at a record high would keep Britain's economy stable and growing.

He predicted the world economy would soon revive - saving Britain from theneed to raise taxes further.

And Mr Brown, bolstered by an increase in National Insurance Contributions,insisted his massive spending plans for schools and hospitals would not be blown off course in the meantime.

The 1p in the pound hike for workers and employers - which came into force at the start of this week - will pay for a record £8bn investment in the NHS by the Government.

He promised 80,000 more nurses and 25,000 more doctors by 2008.Mr Brown blamed the sluggish performance by French and German economies and war in Iraq for this year's downward revision in growth from 2.5 to 3 per cent in November's pre budget review to 2 to 2.5 per cent.

But he insisted growth in 2004 and 2005 would be 3 to 3.5 per cent, better than the 2.5 to 3 per cent predicted in November.

Mr Brown admitted he had been forced to increase borrowing, but insisted it was "prudent" to do so at this time.

Borrowing will be £27bn this year, compared to a prediction of £24 billion. But he said this would fall to £22 billion by 2007.

Shadow Chancellor Michael Howard accused the Government of "53 tax rises, 53 failures", saying extra spending has not improved public services.

He also warned the public were facing a "triple whammy" of national insurance rises, frozen personal allowances and council tax rises averaging 13 per cent.

The Government was now spending £14,412 every second - the equivalent of a Ford Mondeo car.

Updated: 13:52 Wednesday, April 09, 2003