Income tax cut in Brown's last hurrah!

Chancellor Gordon Brown today sprang a final Budget surprise with a 2p cut in the basic rate of income tax. Delivering his 11th - and almost certainly last - annual financial statement he said the basic rate would be cut from 22p in the pound to 20p from April next year.

Chancellor Gordon Brown today sprang a final Budget surprise with a 2p cut in the basic rate of income tax.

Delivering his 11th - and almost certainly last - annual financial statement he said the basic rate would be cut from 22p in the pound to 20p from April next year.

But while the basic rate of income tax will come down, there was a sting in the tail with the abolition of the lowest 10p rate from 2009.

In other measures, intended to set the stage for his expected takeover at No 10 when Tony Blair steps down later this year - he said that 600,000 pensioners would be taken out of tax altogether.

Child benefit will go up and there was a £14 billion increase in spending on schools which will rise from £60 billion to £74 billion by 2010.

Mr Brown announced a £400 million boost for the Armed Forces engaged in operations in Iraq and Afghanistan.

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And he promised an extra £86 million for the intelligence and security services in the fight against terrorism.

The measures were coupled with a £36 billion asset sell-off - including the student loan book - and a £26 billion-a-year Whitehall efficiency drive to release money for frontline public services.

Mr Brown also confirmed a boost for British business with a cut in mainstream corporation tax from April 2008 from 30p down to 28p.

The Chancellor said the new rate would be "the lowest of all the major economies".

A buoyant Mr Brown laughed off the accusation of his "Stalinist ruthlessness'' by former Cabinet Secretary Lord Turnbull, joking that he welcomed the "forthright advice'' he received from civil servants - "or should I say comrades''.

But David Cameron seized on the "Stalinist'' label in his response.

The Tory leader accused the Chancellor of "wasting money on an industrial scale''.

Rising to Conservative cheers after the 48-minute statement, Mr Cameron told Mr Brown that average families were paying £1,300 more "because of your Budget decisions''.

Mr Cameron said: "You have finally given us a tax cut. You normally do that before a General Election but you are in such a deep hole you have had to do it before the leadership election.''

Mr Cameron then responded to noisy Labour MPs: "It is a bit like Stalin. They are cheering him on now, he'll wipe them out later.''

On the environment, Mr Brown confirmed that road tax for the most polluting cars will increase to £400 next year.

But he deferred this year's annual 2p a litre fuel duty increase by six months to October.

He also rejected Tory calls to put VAT on airline tickets, which would have meant a 17.5% rise in prices.

He told MPs: "I have investigated the detail of this proposal.

"It gives me no pleasure to tell the House that the substance of this measure has not been properly thought through.

"It would apply only to domestic flights, business would be able to claim back VAT, and even by 2020 it would save just 50,000 tonnes of carbon - less savings in one year than achieved by the climate change levy in just one week.

"So I have rejected this proposal in favour of the six million tonnes of carbon saving achieved by the fairer and more environmentally efficient measures I have outlined in the Budget today.''

For drinkers, he announced that from midnight on Sunday, beer will rise by 1p a pint, cider by 1p a litre, wine by 5p a bottle and sparkling wine by 7p.

But, for the tenth Budget in a row, he froze duty on spirits.

For smokers, he said: "While I will go ahead from 6pm tonight with the annual inflation rise on a packet of 20 cigarettes, of 11p, I want us to do more to support the health advice campaign, initiated by the Health Secretary, with a new incentive to encourage people wishing to give up smoking.

"For one year from July 1st for nicotine replacement and other products that help smokers to quit, I am cutting VAT to the lowest I can, from 17.5 per cent to 5 per cent.''

The Chancellor also rejected Tory calls for the return of the married couples' allowance and for a transferable tax allowance between husbands and wives with children under five.

Mr Brown claimed the proposal would actually penalise three million widows and their children who would be denied the allowance and would also penalise wives or husbands left by their spouse.

He said the transferable tax allowance earmarked for families with children under five would be available to just one million married couples.

He said the measures would exclude the vast majority of married couples - eleven million married couples and eleven million children.

On inheritance tax, he said the allowance would rise from £285,000 today to £350,000 in 2010 - ensuring, he claimed, that 94% of estates will not pay inheritance tax.

Mr Cameron said Mr Brown could "not run away'' from his record: "You are the Chancellor who has put the tax burden up.

He said: "I have to say we will check carefully what is happening to the aligning of national insurance because we think it might be hitting middle-income families.''

He went on: "Let me tell you what the Chancellor's real problem is, it is not that he is a Stalinist who holds all his colleagues in contempt - although I have to say that probably doesn't help, it is that he has wasted money on an industrial scale.''