Brown budgets for votes: the election campaign starts here

The countdown to the next election began yesterday when Gordon Brown promised to inject more money into education and other public services without a rise in taxes.

The countdown to the next election began yesterday when Gordon Brown promised to inject more money into education and other public services without a rise in taxes.

In a highly political Budget, the Chancellor mapped out the battleground for a general election next May - in which Labour spends the £20bn savings ordered from a Whitehall efficiency drive on frontline services, while the Tories would increase spending more slowly and offer tax cuts.

Mr Brown steered clear of tax rises but Michael Howard, the Tory leader, branded him a "credit-card chancellor" who had produced a "borrow now, tax later Budget". He warned: "The country will pay for it later in Labour's third-term tax rises."

The Chancellor said the education budget will rise from £59bn in the current year to £72bn in 2006-07 and £77bn the following year. He taunted the Tories by rejecting their policy of freezing spending on defence, transport, the Home Office, science, housing, local government, the elderly, children and overseas aid.

Aides of Mr Brown said voters would have a real choice at the next election, when there would be a "big difference" between the two main parties, between spending on frontline services and cutting tax. "It's a very, very simple choice," one said.

Despite his promise to outspend the Tories, there will be a tough negotiation in the Cabinet over how the rest of the £520bn public spending cake for 2005-06 will be cut. It will rise to £579bn by 2007-08, a much smaller rise than in the last review.

Mr Brown imposed a squeeze on the running costs of government departments, which have been told to cut their administration bills by 2.5 per cent a year. As a start, a total of 40,500 jobs will be axed - 30,000 at the Department of Work and Pensions and 10,500 at the Inland Revenue and Customs and Excise, which are to merge.

The Chancellor announced a small increase in his already high borrowing figure for 2004-05, up from the £31bn he predicted in December to £33bn, but he insisted that he would meet his golden rule of balancing the nation's books over the economic cycle. He trumpeted the longest period of sustained growth for more than 200 years and predicted the economy would grow by between 3 per cent and 3.5 per cent this year and next.

The Tories claimed Mr Brown would not be on course to meet his golden rule if he had used the same method for calculating progress in last year's Budget.

Derek Scott, until recently Tony Blair's economic adviser, said: "There clearly is a danger of rising tax after the next election, and that's pencilled in to some extent in the Chancellor's own plans. You certainly wouldn't put your life's savings on it not happening."

There were few pre-election gimmicks, although Mr Brown announced an extra £100 for pensioners aged over 70 in a one-off move to soften the blow of council tax rises. It will be added to the winter fuel bonus, taking it to £300 for those over 70 and £400 for those over 80.

He put 1p on a pint of beer, 4p on a bottle of still wine and 8p on a packet of cigarettes. Petrol will rise but not until September, and road tax was frozen. Mr Brown backed the findings of a review of housing, published yesterday, which called for between 70,000 and 120,000 extra houses to be built each year.

As expected, he kicked euro membership into the long grass by ruling out another assessment this year.

Economists said the Chancellor had simply delayed the need for tax rises. They warned that he would have to impose a £10bn a year tax hike - equivalent to 3p on the basic rate of income tax. They said his decision to hold back from tax rises in the run-up the next election, combined with plans to raise spending by £40bn, left important questions hanging over the sustainability of the public finances unanswered.

Experts also cast doubt on the Chancellor's claim that he will hit his golden rule. "The way ordinary people would do the sums shows the golden rule being broken in the current cycle but by a trivial amount," said Martin Weale, director of the National Institute of Economic and Social Research.

AT A GLANCE

* Education budget to rise from £59bn in the current year to £72bn in 2006-07 and £77bn the following year

* Pensioners aged over 70 to get an extra £100 this year to help with their problems paying rising council tax bills

* 1p on a pint of beer, 4p on a bottle of still wine and 8p on a packet of cigarettes

* 30,000 jobs to be cut at the Department of Work and Pensions and 10,500 at the Inland Revenue and Customs and Excise, which will merge

* Fuel duty up by 1.9 a litre in September but ultra-low sulphur fuel up 1.4p

* Public spending total set at £520bn for 2005-06, rising to £579bn in 2007-08