He said this would benefit every company making profits of up to �50,000.

Measures intended to stimulate e-commerce and encourage a knowledge-based economy were also central to the annual finance bill.

The last Budget of the 20th century would "leave behind sterile conflict" between governments of the left and right.

Gordon Brown: "A Budget to encourage a dynamic Britain"

Instead, it would "encourage a dynamic Britain of enterprise and fairness", the chancellor said.

This had been made possible by previous changes aimed at bringing stability, he said.

Inflation would stay at 2.5% for the next two years, the chancellor forecast.

"For the first time in a generation, Britain can look forward to long-term low inflation," Mr Brown said.

He confirmed his previous growth forecast at 1% to 1.5% for 1999 and 2.25% to 2.75% the following year.

The chancellor set out a number of further tax cuts aimed at stimulating investment by business and through e-commerce.

These included "new targeted tax cuts and public investment to equip all our companies and all our people for the newest and most decisive economic challenge of the 21st century - mastering information technologies, from the PC to the Internet, from e-mail to e-commerce", he said.

The chancellor allocated �500,000 to start a �1.7bn computer initiative for schools.

Corporation tax will be from 31p to 30p from 1 April and small companies tax received a similar reduction taking it to 20p from the same date.

The Budget surplus was put at �2bn for the year 2000 and forecast to rise to �11bn by 2005

"Britain's fiscal position is not only sound today but on the soundest possible footing for the long term," Mr Brown said.

He added that the UK is "well within the limits" for meeting the criteria to join European economic and monetary union.

"As we cut debt payment and we cut at the same time the bills of economic failure, I will further lock in the fiscal tightening we have achieved over the next two years."

Full details of the changes to tax and benefits were revealed in full to the Cabinet on Tuesday morning after the chancellor had breakfast with his Treasury team.

Tony Blair's official spokesman later said the prime minister viewed the package as "radical and imaginative".

During his Budget speech, as the nation's eyes are firmly fixed on the Commons despatch box, Mr Brown is following his own past precedent and drinking mineral water.

Other chancellors, including Ken Clarke, have preferred whisky to get them through what can be a gruelling ordeal.

Further back, Benjamin Disraeli drank brandy with water, while his great Victorian rival William Gladstone preferred sherry with a beaten egg.