LONDON (Bloomberg) — Chancellor of the Exchequer Gordon Brown, months away from succeeding Tony Blair as U.K. prime minister, cut income and corporation taxes as he sought to rebuild support for the Labour Party after a decade in office.The basic rate of income tax was cut two percentage points to 20 percent while the threshold for the 40 percent tax bracket was pushed up. He cut corporation tax two percentage points to 28 percent.

The Treasury will borrow an extra $10 billion ($19.5 billion) in the next four years, Brown said.

Delivering what is likely to be his last budget before taking over from Blair, Brown also set out plans for a record $674 billion ($1.3 trillion) in government spending by 2010. The measures in all will cost the Treasury $120 million over the next three fiscal years.

“This budget will set out the long-term reforms we must now make to meet the global challenges ahead, and to build a Britain of high aspiration and achievement,” Brown said in his annual budget statement to Parliament in London yesterday.

The measures are aimed at bolstering the Labour government’s sagging popularity and mapping out Brown’s plans to lead the nation after Blair retires later this year.

Conservative leader David Cameron has eaten away at Brown’s support in polls both in popularity and reputation for managing the economy.

“The budget will lock in and close down the leadership issue for Gordon,” said Sunder Katwala, head of the Fabian Society, which helped found the Labour Party in 1900 and generates some of its policies. “This is the budget of the next prime minister.”

An opinion poll by ICM Ltd. showed 41 percent of voters support the Conservatives while Labour had 31 percent. Backing for Brown was at 28 percent while Cameron had 43 percent. ICM interviewed 1,011 adults between March 16 and March 18.

Brown’s forecasts assume economic growth this year and next will top the projections of most economists, allowing the deficit to narrow to 26 billion pounds by fiscal 2011 from 35 billion pounds in the current year through April.

Brown expects growth of as much as 3.25 percent in 2007 and up to three percent in 2008. The figures, in line with his December forecasts, exceed the 2.8 percent growth 22 economists surveyed by Bloomberg News predict for this year.

“We retain a gloomier view, reflecting a less optimistic forecast for economic growth and a projection that Treasury projections for tax may prove too optimistic,” Alan Castle, a UK economist at Lehman Brothers Holdings Inc., said before yesterday’s announcement.

Brown put improving schools and the National Health Service at the centre of his agenda. The Treasury, after running up deficits in each of the past five years, is struggling to pay for his programmes while meeting rules to keep a lid on debt.

For companies, Brown cut the basic rate of tax to 28 percent from 30 percent, almost matching a Conservative challenge to reduce the rate by three points. Duties on cigarettes will rise 11 pence per pack this year and further in coming years.

Brown will raise $7.3 billion by eliminating the ten percent tax band while the Treasury will lose $8.1 billion by lowering the basic income tax rate to 20 percent.

Brown also raised the income threshold for people taking a tax credit, costing the Treasury $1.3 billion .

Business will pay $2.5 billion extra from an increase in fuel duties and a tax on empty properties.