A £2 billion slow-burn tax cut for business was one of the centrepieces of British Chancellor of the Exchequer, Mr Gordon Brown's Green Budget yesterday. After lecturing cabinet colleagues on the need for fiscal prudence - to avoid repeating the mistakes of the late 1980s - the chancellor managed to find surprisingly large sums for his own tax and spending priorities. Economists in the City of London were disappointed not to see bigger cuts in government borrowing forecasts.

Mr Brown announced that the main rate of corporation tax in Britain will be cut again by 1 per cent to 30 per cent, from April 1999. In the first ever pre-Budget statement, he took the Commons by surprise yesterday by also announcing measures to assist British creative genius and abolish advance corporation tax.

"The real choice facing Britain in the coming Budget and beyond is between, on the one hand muddling through as we have done for decades from one stop-go cycle to another, or on the other hand breaking with our past, burying short-termism and securing long-term strength through stability, sustained increases in productivity and employment opportunity for all," he said.

The statement is intended to give an outline of the Chancellor's thinking and the state of the country's finances ahead of next spring's full Budget package.

Mr Brown said the Government had to address three key challenges: to increase productivity, tackle unemployment and ensure an end to the "boom and bust, stop-go" economics of the past.

He also produced a rabbit out of the hat when he moved to banish pensioners' fears over turning up their heating in winter with a surprise £380 million contribution towards their fuel bills.

The poorest pensioner households will receive £50 payments - some of them as early as January. And all pensioner households will receive at least £20 in an exercise that will be repeated next year.

To encourage long-term investment, a review of capital gains tax will be completed in time for the spring Budget and measures to help leading-edge business develop new technologies and assist small businesses to create jobs via venture capital are also on the cards in spring.

If the economic news was largely upbeat, Mr Brown insisted he would not trigger a 1988-style boom-and-bust cycle by relaxing his tight grip on public spending and slackening his tough fiscal regime. He urged wage-restraint on workers but in the boardroom too, warning that short-term, hefty pay claims now would prevent fresh jobs for those out of work in the future.

For the Tories, Shadow Chancellor, Mr Peter Lilley claimed many of the measures had been made possible only by the "golden legacy" left by 18 years of Conservatism and by policies every one of which Mr Brown had opposed upon their introduction.

The proposals won warm approval on the Labour back-benches - but it was clear within minutes of the statement that they were not enough to persuade some of Mr Brown's fellow MPs to drop their campaign to force a U-turn over planned cuts which will take up to £11-per-week from lone parents' benefits from April.

The Chancellor also promised further reforms for the low-paid in the shape of changes to the National Insurance contributions system as it affects them.

He also plans to work up a tax-credit system for working families - so they are paid through the wage-packet rather than receive top-ups to their income through the benefit system.

For youngsters seeking work, some of Britain's leading bus and rail companies - including National Express and Stagecoach - had agreed to offer discount travel.

Grants for training worth £1,700 to the young unemployed and £1,500 for the long-term unemployed will also be on offer under the Chancellor's proposals.

Mr Brown also reaffirmed his commitment to introduce a national minimum wage.

The Chancellor's economic forecasts envisage 3.5 per cent growth this year slowing to "a more sustainable rate" from 1998 and inflation at 2.75 per cent this year, 3 per cent next year then 2.5 per cent in the two subsequent years at the same time as public borrowing tumbles from £22.5 billion last year to £12 billion this year and £6 billion in 1998.

But he warned that the appearance of an economy under control would not prompt him to relax his grip. That would risk the kind of boom-and-bust episode that rocked the Conservatives in 1988, he said.

And he added: "Wage responsibility is a price worth paying to achieve jobs now and prosperity in the long term. It is moderation for a purpose."

He put no date on the introduction of a 10p starting rate of tax for low earners but he promised to bring in the measure "when it is prudent to do so".

It would be coupled with better benefit "tapers" to ensure that anyone leaving the dole queue would be better off in work than on benefit.