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Tax cuts set out by the government in next week's pre-budget report will be aimed at the 1.1 million people who did not receive emergency compensation when the controversial 10p tax rate was abolished earlier this year, the Guardian has learned.
But concerns about the scale of public borrowing mean that the changes will be modest and will be followed soon afterwards by tax rises to reduce national debt towards sustainable levels.
The employment minister Tony McNulty admitted that immediate tax cuts would have to be followed by increases in the medium term, something Brown was reluctant to admit at his monthly press conference yesterday. Around 20% of the 5.3 million households which lost out from the abolition of the 10p tax rate were not covered by the government's emergency compensation package unveiled in May.
Detail of the government's strategy emerged as the latest unemployment figures are set to reveal the depth of the economic downturn. The jobless figures are expected to rise sharply today. Official figures could show the claimant count - the number of unemployed eligible for benefits - rising above the 1 million mark for the first time in eight years.
A number of leading companies announced job cuts of more than 5,000 yesterday as Virgin Media, Yell the owner of Yellow Pages, Psion and Vodafone all laid off staff.
The Bank of England's labour market expert, David Blanchflower, has predicted that the wider measure of unemployment, the labour force survey that calculates the number of people looking for work, will top 2 million by Christmas after it jumped 164,000 to 1.79 million in the three months to August.
It is expected that the date of the pre-budget report will be announced today and is likely to be Wednesday next week, but discussions were continuing even last night. Gordon Brown is eager to see clear signs that an internationally coordinated reflationary stimulus is agreed in principle at the meeting of G20 world leaders in Washington on Saturday because global commitments will affect the degree to which Britain can risk a reflationary strategy of its own.
Ministers are expecting the borrowing figures to be announced in the PBR to be way over the government's sustainable investment rule that public sector debt should not exceed 40% of national income - largely due to a collapse in corporation tax from the financial services industry, the slowdown in the economy and a fall in stamp duty receipts.
It is not expected that the chancellor Alistair Darling will produce an entirely new set of fiscal rules to those first set out by Brown when he was chancellor in 1997, but instead he will present a strategy for how the government can take the public finances back inside the existing rules at some point after the 2010 general election.
The great concern next year is that although real disposable income for those in work will rise due to the fall in mortgage rates and the price of oil, Britain may suffer deflation rather than inflation.
The fear of world wide deflation is leading Brown and Darling to put as much pressure as possible on the EU, Asian economies and the US to agree to a reflationary package.
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