Alistair Darling sought to neutralise the issue of inheritance tax as he stole three key policies from the Tories in his first tax and spending statement as Chancellor.
What would have been the launch-pad for Labour's general election campaign if Gordon Brown had decided to call one next month was still a highly political package. Mr Darling tried to prevent the Tories reaping a reward for reform of death duties by acting only a week after they pledged to raise the threshold at which inheritance kicks in to £1m.
The Chancellor announced that the current £300,000 threshold would be transferable between married couples and people in civil partnerships. It will double to £600,000 now and rise to £700,000 by 2010-11 at an annual cost of £1.4bn by then. The move will be retrospective for three million widows and widowers. Mr Darling rejected the Tory scheme, saying that increasing the threshold to £1m would cost a further £2bn.
Presenting his pre-Budget report and CSR, he announced that health spending would rise by 4 per cent over the next three years – twice the rate of public spending as a whole but much lower than the 7 per cent increases for the NHS in recent years. As The Independent revealed last week, the health budget will rise to more than £100bn a year for the first time. The move will provide 20 new hospitals, 150 new walk-in centres and 100 new GP practices.
Education will receive a slightly more generous settlement than previously announced, allowing £250bn to be spent on personalised learning for all pupils.
Mr Darling also stole Tory clothes by targeting foreigners working in Britain who limit their tax bills by claiming non-domicile status, the method by which the Opposition plans to fund its inheritance tax cuts.
He adopted a third Tory policy by pledging to replace air passenger duty with a new "flight tax" to combat climate change by encouraging airlines not to fly empty or near empty planes. The move will raise £520m by 2010-11, while a shake-up of capital gains tax will bring in £900m, and the moves on "non-doms" a further £500m.
Labour sources insisted that Mr Brown had intended to include yesterday's reform of inheritance tax in his last Budget this spring but could not find the money because he decided to cut the basic rate of income tax from 22p to 20p in the pound from next year. Labour figures denied the charge of "political pilfering," claiming the Chancellor's moves were fairer and more affordable than the Conservative proposals on inheritance tax and "non-doms."
But the Tories hit back, accusing Mr Darling of raising taxes by £2.2bn over the next three years, and quietly raising net borrowing, which will be £38bn this year, up £4.3bn since the March Budget, £36bn next year (up £6bn) and £31bn in 2009-10 (up £3bn).
George Osborne, the shadow Chancellor, described yesterday's package as "a pre-election Budget without the election."
He dismissed Labour's move on inheritance tax as "another tax con," saying it was much less generous than the Tory scheme.
Mr Darling cut next year's forecast for economic growth from 2.5 to 3 per cent to 2 to 2.5 per cent, blaming the global credit crunch.