Chancellor raises political stakes

Chancellor Alistair Darling yesterday sought to seize the political momentum back from the Tories by promising to cut inheritance tax while boosting investment in health and education.

Chancellor Alistair Darling yesterday sought to seize the political momentum back from the Tories by promising to cut inheritance tax while boosting investment in health and education.

Delivering his first pre-budget report, Mr Darling said he would raise the inheritance tax threshold for couples immediately to £600,000 and to £700,000 by 2010 - and to cheers from Labour MPs he said investment in the NHS in England would rise from £90bn this year to £110bn in 2010.

He said the Treasury had found £20m more savings that could be made and this would help to pay for spending increases including on defence, the fight against terror and transport schemes including the funding of Crossrail.

But he also stole more Tory clothes by closing tax loopholes enjoyed by so-called “non-domiciles” and levying a levy on flights rather than air passengers.

His inheritance tax move received a mixed response from experts in East Anglia.

Married couples - and people in civil partnerships - will be able to transfer their individual nil rate bands to the surviving spouse giving them a joint allowance of £600,000. That threshold will rise by 2010 to £700,000. And this will be back-dated indefinitely for three million widows and widowers.

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Mr Darling said the move would benefit 97 per cent of people but he refused to go as far as the Tories in promising a £1m threshold, saying the money should instead be spent on health and education.

Martin Hales, senior manager at the Norwich office of Grant Thornton chartered accountants, said:

“The transferability of allowances for inheritance tax will hopefully simplify the system for those families who want to take advantage of these reliefs.

“Despite IHT being ripe for change, and the Conservatives saying as much by pushing the nil-rate threshold up to £1m and exempting the family home, we did not believe the chancellor would make any big moves in this area and this has seemingly been proved correct.”

Mr Darling also said that in future years both house prices and inflation would be taken into account when setting the inheritance tax threshold.

His proposals drew shouting and laughter from the Opposition MPs and Shadow Chancellor George Osborne hailed the statement as “pre-election budget without an election.”

Alison Rolls, head of communications at Norwich and Peterborough Building Society, said: “The chancellor's doubling of the inheritance tax threshold sounds like a huge increase but in reality couples were able to utilise a joint allowance of £600,000 by making a will trust. However a rise to £700,000 by 2010 is to be welcomed.”

Mr Darling also pledged to help lenders provide more fixed-rate mortgages for 10 years or even longer.

But Ms Rolls added: “The new chancellor's continuation of Gordon Brown's emphasis on fixed rate mortgages to steady the housing market may be difficult to persuade the house buying public of.

“We would have liked to have seen some improvement to stamp duty for homebuyers and an increase in ISA allowances for our savers.”

Mr Osborne branded the statement as a “desperate cynical stunt from a desperate and weak Prime Minister”.

Mr Osborne claimed the Tories had set the agenda for the statement. To cheers from Tory benches, he said: “I don't know why he even bothered to turn up. He should have called that election and let us give the budget. Instead we had a pre-election budget without the election.”

He said Gordon Brown had had ten years to address issues like inheritance tax.

“Now a week after we put forward our plans the prime minister and the chancellor are scrabbling around in a panic trying to think of something to say.”

And he accused the prime minister of having to wait for the Tories to tell him what his vision for the country was.

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