A CONFIDENT Gordon Brown banked heavily on rapid world economic recovery yesterday as he stuck to his ambitious spending plans while producing a new Budget boost for pensioners and parents.

The Chancellor surprised the markets by raising his government borrowing projections by only £3 billion, basing his optimism on a strong international upturn next year.

As predicted in The Times on Monday, Mr Brown used the Budget to send out signals of his opposition to early membership of the euro. A statement from him declaring that the five economic tests have not been met could come in as little as three weeks, The Times learnt last night. The assessment appears to be close to completion.

With last year’s increases in national insurance and taxation coming into effect this week, Mr Brown did not impose any new taxes on individuals, even though the Tories claimed last night that he would raise £26 billion more in taxes this year than last.

Michael Howard, the Shadow Chancellor, said that the Treasury’s own forecasts showed that tax as a proportion of output would increase indefinitely over the next few years.

The Chancellor hit smokers and drinkers with duty rises on cigarettes, beer and wine. From Monday cigarettes will be 8p more for a packet of 20, beer drinkers will pay 1p a pint more, and wine will be another 4p a bottle. He eased the pain for motorists by delaying the annual 1.28p-a-litre uprating of petrol duty until October at least because of world economic troubles.

Mr Brown, as expected, cut half a point off his forecast for growth this year. But he again surprised the City by counting on a strong recovery next year with growth of between 3 and 3.5 per cent — as he has previously forecast — as consumer spending picks up and the American economy bounces back after the war in Iraq.

The Chancellor’s decision to stick with his bullish projections from 2004 leaves him well out of step with City consensus: a forecast of 2.3 per cent growth. Mr Brown was more hopeful about next year than the International Monetary Fund, whose forecast yesterday suggested growth of 2.5 per cent for 2004.

Simon Rubinsohn, economist at the broker Gerrard, said: “The growth estimate for this year is a little on the high side, but it is for next year where our concerns are greatest. It is not inconceivable the ambitious target may be met. However, the risks are plainly skewed on the downside.”

In an unexpected move, Mr Brown announced important reviews of the housing market to find ways to reduce its volatility. One will look at developing a market for longer fixed-rate mortgages; the other will look at reducing the barriers to building new houses.

Mr Brown pleased Labour MPs with help for the elderly as he scrapped so-called hotel charges for hospital patients. At present they face charges for meals and accommodation if they are in hospital for six weeks or more. These will also be dropped for benefit claimants.

He reiterated that, when the new pension credit comes into effect in October, single pensioners on up to £139 a week will be about £15 a week better off, while couples on up to £203 a week will get an extra £20. He confirmed plans for child trust funds — so-called “baby bonds” — worth at least £250, and possibly as high as £500, for all newborn babies.

He also announced that pensioners aged 80 and above will receive an extra £100 winter allowance, bringing the total allowance to £300 for almost two million people.

Knowing that his Budget would be overshadowed by events in Baghdad, Mr Brown began by confirming that he had set aside £3 billion for the cost of the military conflict. He paid tribute to the Armed Forces for their “zeal, bravery and resilience” in the conflict and he said the nation owed “a debt of gratitude to the strong leadership in a difficult time” of the Prime Minister.

Setting the tone for a bullish 59-minute statement, Mr Brown went on: “Britain, even in difficult world conditions, is able to meet our military and security costs abroad and at home and the costs of building peace, while maintaining in full our record investment in schools, hospitals, transport and policing and providing new help for British business, industry and commmerce.”

Iain Duncan Smith saw the Budget as “more taxes, more spend, more waste”. The Tory leader said: “This is a Chancellor who promised us prudence and has now given us higher borrowing and higher taxes at the same time.

“His Budget message is clear: higher taxes, that’s pain today, and higher borrowing, that’s more pain tomorrow.”