Chancellor delivers inheritance tax pledge

Chancellor Alistair Darling has announced cuts to inheritance tax and promised to provide extra cash to improve health and education.

Mr Darling said that he would raise the inheritance tax threshold for married couples and civil partners to £600,000.

By 2010, the combined tax-free allowance for couples will rise to £700,000 and in a surprise move, Mr Darling said this would be backdated indefinitely for every widow or widower.

In future years, both house prices and inflation will be taken into account when setting thresholds, he said.

Mr Darling said the new allowance was worth more than the value of 97 per cent of homes in the country.

The cut is less generous than the Conservative's recent proposal of increasing the threshold to £1 million.

But Mr Darling said such a move would cost a further £2 billion, with half of this money going to estates worth more than £950,000 - the top 1 per cent.

To cheers from Labour MPs, Mr Darling went on to announce that investment in the NHS in England would rise from £90 billion this year to £110 billion in 2010.

He said there was a need for a "modern tax regime" based on three clear principles: being competitive, simple and fair.

He announced three reviews proposing "simplification of the tax system" to help self-employed people and businesses, saving British business "up to £100 million a year".

The Chancellor said his proposed changes to capital gains tax ensured "those working in private equity pay a fairer share".

From April next year, capital gains taper relief will be replaced with a single 18 per cent rate.

"I believe its right that everyone who lives and works here should pay their fair share," he added.

He sought to demolish the Tory policy of charging non-domicile tycoons a flat-rate of £25,000.

Mr Darling said the charge would raise only £650 million rather than the £3.5 billion claimed by the Tories.

He said: "I will now consult with a view to early legislation on an alternative route, as a first step introducing a charge after seven years with a higher rate after ten and preventing people claiming they are out of the country when they are actually here."

The measures were set out in Mr Darling's first Pre-Budget Report and Comprehensive Spending Review.

He told the Commons the background to his report was one of increased international economic uncertainty.

He promised that the Government would take no risks with security or unaffordable promises that put public finances in jeopardy.

"The theme for this year's Pre-Budget Report is that, provided we maintain the course for economic stability that we have set, we can respond to this global environment," he said.

"We will do so by taking no risks with stability, no risks with unaffordable promises that put the public finances at risk.

"And we can respond, as well, to the rising aspirations of the British people by taking the right long term decisions for our country."

Mr Darling forecast economic growth of 3 per cent this year, 2 per cent to 2.5 per cent in 2008 and 2.5 per cent to 3 per cent in 2009 and 2010. Inflation will be on target for 2 per cent next year and the year after.

Shadow Chancellor George Osborne launched a scathing attack on Mr Darling in response to the report.

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".

To cheers from Tory benches, Mr Osborne claimed the Tories had set the agenda for the statement.

"I don't know why he even bothered to turn up," he said.

"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.

© Independent Television News Limited 2007. All rights reserved.