Darling acts on inheritance tax

Chancellor Alistair Darling today sought to steal the Tories' thunder promising to cut inheritance tax while boosting investment in health and education.

Delivering his first Pre-Budget Report, Mr Darling said that he would raise the inheritance tax threshold for couples to £700,000.

And to cheers from Labour MPs, he said that investment in the NHS in England would rise from £90 billion this year to £110 billion in 2010.

His proposals came after the Tories promised at their annual conference last week to exempt estates under £1 million from inheritance tax.

Mr Darling, however, dismissed Tory plans to pay for the cut with a £25,000 flat rate charge on "non domiciled" wealthy foragers - saying it would raise just £650 million, not the £3.5 billion that the Tories claimed.

But to opposition jeers of derision he said that he would be bringing forward his own measures to ensure that the "non doms" were made to "pay their fair share".

Mr Darling said that his inheritance tax proposals would mean that 97% of estates would be exempt while leaving him with an extra £2 billion to invest in schools and hospitals.

Shadow Chancellor George Osborne's response was scathing.

He branded the statement "a pre-election budget without the election" and said it was 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 that 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.

There were further jeers as the Chancellor announced that he was adopting another Tory proposal, switching the air travel duty from passengers to flights from 2009.

As expected, Mr Darling opened his statement by downgrading his predecessor Gordon Brown's forecast for economic growth next year.

He said the economy was now expected to grow by between 2% to 2.5% - compared to Mr Brown's prediction of 2.5% to 3%.

But he insisted that it would bounce back strongly in 2009 - the likely year of the next general election - with growth of 2.5% to 3%.

At the same time he announced that Government borrowing this year was set to hit £38 billion - £4 billion more than Mr Brown was predicting in his last Budget in March.

But he insisted that it would fall back to £23 billion in 2012.

Mr Darling, who was also setting out the final stages of the three-year comprehensive spending review, announced a 4% real terms increase for the NHS.

He said that the money would be used to ensure a maximum wait of 18 weeks from referral to hospital, increased access to GP services and cleaner hospitals.

At the same time he said that there would be additional funding for schools on top of the education settlement announced by Mr Brown in the last Budget.

On security, Mr Darling announced the creation of a new single budget for counter-terrorism covering the work of the police and the intelligence services.

He said that spending would rise every year over the next three years to £3.5 billion at the end of the period.

The Armed Forces will receive an additional £400 million to cover the cost of continuing operations in Iraq and Afghanistan.

Mr Darling said that he would be closing a series of tax loopholes - including abolishing the tapered capital gains tax relief to ensure that private equity firms also pay "a fairer share".

And he promised extra help for poorer families and pensioners, with £200 million for free off-peak bus travel for pensioners in England. .

Grants to local authorities in England will increase to £26 billion by 2010 while the allocations for the devolved administrations will rise to £30 billion for Scotland, £16 billion for Wales and £10 billion for Northern Ireland.