Brown delivers a budget for 'stability

Gordon Brown today unveiled what he described as a "culture of stability" budget, with a clutch of green measures, a radical overhaul of road taxes and more money for science, skills and schools.

In his 10th - and possibly final - budget as chancellor, Mr Brown announced an extra £34bn spending on education to close the gap between state and private schools.

To finance extra spending on Labour's priorities Mr Brown announced that the Treasury would collect £30bn by selling national assets such as the Tote as well government shares in British Energy and the energy company Westinghouse.

The chancellor also announced that the Treasury, Cabinet Office, Department of Work and Pensions as well as HM Revenue and Customs would all face 5% budget annual cuts in their departmental budgets from next year.

Public spending


Keeping his foot on the public spending pedal, the chancellor admitted that he would have to borrow more, adjusting his budget deficit forecasts from £10.6bn to £11bn for this year and from £4bn to £7bn next year.

On the economy the chancellor predicted on-target growth at 2-2.5% this year, rising to 2.75-3.25% over the next two years, inflation on target at 2% and public sector pay pegged at 2.25%.

There was an extra £800m for the cost of forces in Iraq and Afghanistan, and funds for a memorial for the victims of the July 7 bombings in London, and a £1m fund for Britons injured or killed in terrorist attacks abroad.

Mr Brown, to Labour cheers, called his one-hour, one-minute statement a "budget for Britain's future".

Science classes


Despite early indications from the Treasury that there would be no "pyrotechnics" in the budget, there were a series of surprise measures, such as a programme to give after-school science classes by recruiting an extra 3,000 teachers, and summer school bursaries to US business schools, and £34m for a new National Sports Foundation.

Tory response


The Conservative leader, David Cameron, dismissed the budget, saying: "We wondered if we'd get a budget or a leadership bid - and we didn't get much of either!"

"Cut through all the rhetoric and what we've got is a chancellor who has taxed too much, borrowed too much and is the roadblock to reform.

"He is a politician completely stuck in the past", he said adding: "You can tell how bad the health crisis is - the NHS didn't get a mention."

By a quirk of Westminster tradition it is the leader of the opposition, rather than the shadow chancellor, who responds to the budget, and this was the first time Mr Cameron had faced his likely nemesis as leader, Mr Brown, across the despatch boxes.

The chancellor got the first jibe in, telling the house he had no intention of introducing VAT on "flip-flops" - a gag at the expense of Mr Cameron's perceived U-turn on policies since the last election. He claimed that Mr Cameron's policy of sharing the proceeds of growth between tax cuts and spending would have resulted in £17bn worth of public spending cuts this year.

Cigarettes and alcohol


On the nitty-gritty domestic measures, cigarettes went up by 9p a packet from tomorrow, but duties on sprits were frozen, while wine went up 4p a bottle and beer 1p a pint. Mr Brown joked that duty on champagne was frozen in anticipation of World Cup success this summer.

Condoms and other contraceptives will also have their VAT cut from 17.5% to 5%, in a move long demanded by high-street chemists, and backed by around 70 MPs.

On the macro-economic side, Mr Brown announced that net borrowing will be £37bn in 2006, £36bn next year, then £30bn falling to £25bn, £24bn and £23bn in the years to 2010-11.

Net borrowing will fall from 2.4% of national income to 1.9% and in successive years, 1.6%, 1.6%, 1.6% and 1.5%.

To help the most badly-off, personal tax allowance will be raised from £4,895 to £5,035.

Inheritance tax


The chancellor also raised the inheritance tax threshold by more than £50,000, to £325,000.

There was also an announcement of £250 (and £500 for the worst-off) will be made to seven-year-olds as part of the child tax fund. The child benefit will be increased on April 10 to £17.45.

Vouchers for childcare go up by £5, to £55 a week.

For the 2012 Olympics, Mr Brown promised a total of £600m in funding for athletes - plus an annual "Schools Olympics".

On education, Mr Brown promised to raise state investment levels per pupil to those of private education, as over five years investment in schools will rise from £5.6bn today to £8bn a year, plus a further £500m of capital investment. For failed school-leavers, there will be the chance to retake A-levels up to the age of 25 free of charge.

Climate change levy


On the environment, the climate change levy - frozen since it was introduced - will increase with inflation from next year. Mr Brown also pledged a consultation on the controversial "carbon capture" technology, and more help with insulating homes and a £50m budget for kickstarting "microgeneration" of power at homes and schools.

From tomorrow vehicle excise duties rates will be zero, £40 and then £100, £125, £150, £190 and a new band of £210 for new cars that are the most polluting. However fuel duty increases were deferred to September.

From 2008 all pensioners and the disabled will get free national off-peak bus travel, as well as the local travel to which they are already entitled.

However, there was outrage from pensioner groups, after Mr Brown failed to match last year's budget giveaway of a £200 rebate on the council tax for OAPs. Help the Aged called it a "disgrace" and dubbed last year's announcement as a "pre-election bribe".

As predicted, Mr Brown loosened the rules for business research and development tax credits by doubling from 250 to 500 employees the size of companies eligible.

Lib Dem reply


It was also the first big set-piece Westminster event for new Liberal Democrat, Sir Menzies Campbell. He accused the chancellor of "complacency on the environment" and an "obsession with the Number 10", pointing out it was both his 10th budget and his ambition to move next door.

The 2006 budget has had one of the most muted advance fanfares of recent budgets, with the Labour high command engulfed in first the Tessa Jowell affair and then the "loans for lordships" saga.

As with most budgets, the detail in the small print is only likely to emerge in the coming days.

In last December's pre-budget report Mr Brown embarrassingly had to halve his growth estimate from his own March budget, from 3.5% to 1.75%, although he reaped a £3bn windfall from doubling the tax on North Sea oil profits.

However, Mr Brown now faces a severe test of his political skills, as it is widely predicted next year's Comprehensive Spending Review (which governs spending from 2008-11) will see a halt to the recent huge increases in funding for health and education.

That would coincide with the period when most commentators expect Mr Brown to take over from Mr Blair as both Labour leader and prime minister.

The chancellor permitted himself a joke at his own expense at the beginning of his statement, reminding MPs that the last chancellor who delivered 10 budgets, in the 1820s, did it as a "preparation for his next important job in government [pause] ... as chancellor of the duchy of Lancaster". That minor honorary cabinet post is currently vacant.