GORDON Brown paved the way for North-East devolution yesterday by delivering a Budget for the regions.

The Chancellor unveiled a series of reforms designed to close the North-South divide and give the English regions a say in their economic future.

Developing his theme of economic strength and social justice, he said it was vital that the regions entered into global competition.

"We must encourage and help them harness their distinctive strengths, overcome their weaknesses," he said.

Mr Brown said research and development in the South-East is £450 per head, but in the North-East only £50.

He announced tax credits to help overcome this and the extension of the Science Council, developed in the North-West, to the rest of England.

About 200 wards in the North-East will also be designated as Enterprise Areas, to help improve the region's low level of business start-ups.

Each region will also publish their own inflation figures, which will be used to determine different rates of public sector pay and benefits across the country.

Overall, Mr Brown has staked his reputation on a Budget that predicts the British economy will grow to match his spending pledges.

For the second time in six months, the Chancellor was forced to ease back his predictions for the growth that will yield him the tax revenue needed to fund his public spending commitments.

Mr Brown and his advisors have placed themselves out on a limb by predicting Britain's economy will grow three per cent next year, and by 3.5 per cent in 2005. Many forecasters, particularly in the City, are much more pessimistic.

The consensus is that growth will be about 2.4 per cent, a figure that will leave Mr Brown having to borrow more, or put up taxes, to keep up public spending.

Borrowing will have to go up by another £3bn - to a peak of £27bn this year - compared with the £24bn he was forecasting at the time of the Pre-Budget Report in November.

Mr Brown, however, painted a rosier picture of an economy ready to seize the opportunities ahead when the world pulls out of recession.

Alone among the major economies, Britain had managed to combine low inflation with the lowest unemployment in a generation.

"That same steady economic leadership, vigilant to risk, resolute in our commitment to stability, is essential for a post-conflict world economy that, while still fragile, also has the potential for renewed growth," he said.

Mr Brown said the main cause of the slower growth experiences this year was the weakness of the euro-zone, where growth was predicted to be just one per cent overall and only 0.5 per cent in Germany.

His talking down of the performance of the Euro-zone nations has been seized on by opponents of the single currency.

As ever, Mr Brown was keeping his cards close to his chest, although he confirmed he would announce the results of the five economic tests on Britain's entry into the euro in June.

Tory leader Iain Duncan Smith, however, accused the Chancellor of inflicting higher taxes and higher borrowing on the nation in his Budget measures.

"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."

Charles Kennedy, leader of the Liberal Democrats, said Mr Brown had presented a "buck-passing" and "cross-your-fingers-and-hope-for-the-best Budget".

Plans to increase borrowing were sound but there was a "sense of denial" about how well the British economy was performing compared to other countries, he said.