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Gordon Brown wants his budget to lay deep foundations; he has been reviewing the efforts of Margaret Thatcher's first chancellor

Gordon Brown is unlikely to deliver another budget in such favourable political circumstances. The honeymoon with the government is far from over; the Conservative Party remains confused, following a divisive leadership election; Labour's majority is such that radical measures can be considered without fear of Commons defeats and Tony Blair's dominance of his cabinet means any ministerial unease is unlikely to cause a stir.

The political context is thus far more helpful for Brow n than it was for Geoffrey Howe, whose 1979 budget is, in a sense, a model for the Labour chancellor. Like Howe, Brown means to lay the foundations for a long period in office for his party and to define a radical political programme as resonant as Thatcherism.

Chancellor Howe certainly had the full backing of Margaret Thatcher for a programme that institutionalised monetarism into British economic policy, but the first Conservative cabinet was more obviously divided on economic issues than Labour's is now. Many of the so-called "wets" were not only in the cabinet, but in powerful positions. Willie Whitelaw, Ian Gilmour, Jim Prior, Peter Walker, Lord Carrington and Francis Pym, were all big players in the first cabinet and were far from happy with Howe's economic policies. Also, the Tory majority was much smaller than Labour's today. Theoretically if the wets had got their act together, controversial policies could have been defeated, so Howe was taking a political risk, as well as an economic one, in embarking on the course he outlined.

Howe was also constrained by Thatcher's style of leadership. She was already beginning to take an obsessive interest in all areas of government policy, especially the economy. In that sense, too, Brown enjoys greater freedom for manoeuvre than Howe. Blair has allowed his chancellor to chair the cabinet committee on economic policy, a position traditionally used as a means for the prime minister to retain influence in this crucial area. Thatcher always chaired it. So did Major. Although there have been disagreements over policy detail between Blair and Brown (notably, before the election, over whether to propose a higher top rate of income tax), Blair's decision to vacate the chair shows his faith in Brown.

For Brown the budget represents a unique political opportunity, a chance finally to set aside the bitter memory of his failure to become leader in 1994 and to reinforce his claim as the automatic successor to Blair in the unlikely event that the position were to fall vacant. Brown's budget will not be a narrowly drawn economic statement; he will aim to display his political personality to the full.

That personality is not identical to Blair's. Although Brown is held in esteem by Labour's ultra-moderniser on welfare, Frank Field, who predicts that Brown will be a radical chancellor, comparable to Lloyd George, he is also praised by Clare Short, who is attracted by Brown's passion for addressing the disadvantaged, the unemployed, the underclass. In a recent speech to the Scottish Labour conference his theme was the urgent need to tackle poverty. In his embryonic leadership campaign in 1994, allies stressed that Brown would set out to win the support of trade union leaders. He will want to demonstrate that as well as being the "Iron Chancellor" he is the "People's Chancellor" too.

But it is the iron in his political soul that will set the framework of the budget. In some ways Brown will echo Howe, who declared that he sought to change the structure of a tax system which had been "designed to discourage innovation and punish success". Brown is now in agreement with Howe's view of the tax structure in the 1970s and will confirm next Wednesday that he will leave the top and basic rates of tax at much lower levels than Howe announced in 1979.

Brown will also echo Howe's statement that "finance must determine expenditure, not expenditure finance". In 1979 being tough on public spending meant cuts in employment subsidies, the first increase in prescription charges for eight years, the first of many cuts in grants to local authorities and reductions in the aid programme. Brown has already said he will accept the last government's spending targets for two years; these commitments have the side benefit of keeping open Britain's eligibility for joining the European single currency, but the spending restrictions are tighter than those imposed in 1979.

Howe also made clear that reducing inflation rather than full employment was the government's priority. Only by "squeezing inflation out of the system" could sustainable employment be achieved. Brown will make a similar case, in explaining his inflation target of 2.5 per cent. In his Mais lecture in 1995 Blair stated: "Controlling inflation is not only an objective in itself. It is an essential prerequisite of sustainable economic growth on a scale sufficient to attain the social and political aims of Labour, including high and durable levels of employment and rising living standards."

Again, echoes of Howe.

But Howe's budget lacked any sense that the government had a responsibility to address the problems of those excluded from the economic successes he forecast. His starting point was the reverse, that government had to take a step back. "There is a definite limit to our capacity to influence things for the better," he said.

New Labour accepts some of the restrictions implied in this statement, but Brown's budget will herald a period of more active government. Welfare to work is the chancellor's over-riding priority, based on the view that only by cutting the benefits budget will resources be released for longer-term public-spending goals in education and health.

Brown knows that he must be daring now partly because propitious political circumstances will not last. Some of his milder welfare to work proposals, floated in opposition, tested Labour's pre-election unity to its limits. For example, his suggestion that child benefit for late teenagers should be scrapped and the money used for education and training projects strained the loyalty of even David Blunkett and never became a pre-election pledge. Brown is now determined to revive the scheme and to go much further at a time when most back-benchers are in no mood for open revolt.

If there are political limits, they are more defined by the need to preserve an election-winning coalition of business, middle England, the low-paid and the unemployed. In budgets there are usually victims. New Labour has so far been good at not making enemies. So the privatised utilities will be hit with the windfall tax, but how much more does he dare to raise from the private sector without appearing to be anti-business? Middle Englanders have their Tessas, PEPs and mortgage tax relief; does he dare remove them, or reshape them and risk handing his political opponents ammunition? Brown, however, will recall that after two years of Howe's economic policies, the Times ran an article on Thatcher headlined "The Most Unpopular Prime Minister This Century". Less than two years later she won a landslide.

Today's Tories are less well-organised than Labour was in 1979, when Jim Callaghan was still party leader and the process of disintegration was yet to come. When Callaghan opposed Howe at the despatch box, he did so with the authority of a former prime minister. When William Hague stands up to respond to Brown's budget it will be his first big speech as leader of the opposition. Peter Lilley could become an authoritative shadow chancellor. He will certainly be qualified to dissect the government's welfare proposals. But the Conservatives will be looking inwards for some time.

Whether Brown's budget will be greeted as a platform for a radical, two-term government will become plain next week. Lord Howe will certainly be attending with a certain sympathy: he was always quietly furious that many of his policies later became known as Thatcherism. This is Brown's chance to put his stamp on what may, in due course, be known as Blairism.

Howe's key measures: 1979

* Top income tax rate cut from 83 to 60 per cent; basic rate from 33 to 30 per cent

* VAT doubled to 15 per cent

* Spending cut by [pounds]2.5 billion

* State pension uprated only in line with prices, not earnings

* Exchange controls to be phased out

* Interest rates raised from 12 to 14 per cent

Brown's key measures: 1997?

Income:

* Green and "sin" taxes up by [pounds]1.5 billion

* Higher insurance premium tax and air passenger duty: raises [pound]1 billion

* Divided tax credits cut from 20 to 10 per cent: [pounds]3 billion

* Windfall tax on utilities, raises [pounds]5 billion

* Mortgage interest tax relief cut from 15 to 10 per cent: [pound]1 billion

* Ditch profit-related-pay tax relief: [pound]1 billion

Expenditure:

* Welfare to work programme: [pounds]3 billion