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Chancellor announces pre-budget report

By James Blake

Updated on 09 October 2007

The chancellor Alistair Darling has announced plans to raise the inheritance tax threshold, increase revenue from 'non-domiciles' and change aviation taxes.

In his pre-budget report, Mr Darling reduced the predicted growth of the British economy in 2008 to between 2 per cent and 2.5 per cent.

His predecessor, Gordon Brown had predicted growth betweem 2.5 per cent and 3 per cent but Mr Darling predicted the economy will bounce back strongly in 2009 with growth of 2.5 per cent to 3 per cent.

Mr Darling told the House of Commons the UK economy is in "good stead" to withstand the current instability.

Mr Darling also said inflation will again be on target for 2 per cent next year and the year after.

Mr Darling said: "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.

The total amount of inheritance for married couples and civil partnerships on which no tax is paid to rise to £600,000.

"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."

The total amount of inheritance for married couples and civil partnerships on which no tax is paid to rise to £600,000. By 2010 the combined tax-free allowance for couples will rise to £700,000. This will be backdated indefinitely for every widow or widower. In future years, both house prices and inflation will be taken into account when setting thresholds.

Mr Darling said borrowing was 2.3 per cent of national income last year, £4 billion less than forecast and debt was 36.7 per cent, also less than forecast.

He said the current budget is in surplus over the economic cycle. Over this cycle there is a surplus of £18 billion. Current balance going forward is a deficit of £8 billion this year, then £4 billion, followed by surpluses of £3 billion, £9 billion, £14 billion and £20 billion by 2012/13.

The figures for debt in Britain are 37.6 per cent this year and then 38.4 per cent, 38.8 per cent, 38.9 per cent, 38.8 per cent and then 38.6 per cent in 2012.

The Spending Review has identified further departmental savings of £30 billion by 2010, which will be available for reinvestment in public services. Asset sales in four years time will have reached £36 billion.

Departmental spending will rise from £345 billion this year to £397 billion in 2010. There will be an additional £400 million for armed forces operations this year.

A single budget will bring together the work of the police, the security services and all parts of the Government responsible for addressing the threat from terrorism.

It will rise every year over the next three years to £3.5 billion a year, representing a trebling in cash terms in a single decade, including £700 million over the next three years for Home Office anti-terrorist work.

The Chancellor attacked Tory proposals to raise £3.5 billion from a £25,000 flat rate charge on "non-domiciled" wealthy foreigners - claiming it would bring in just £650 million.

To opposition jeers of derision he said that he would be bringing in his own measures to ensure that the "non doms" do actually "pay their fair share" with a consultation on early legislation.

Changes proposed to capital gains tax, together with tax loopholes being closed, will ensure those working in private equity pay a fairer share. From April next year, capital gains tax taper relief will be withdrawn, replaced by one rate of 18 per cent.

The budget for Defra will rise to £4 billion in three years' time to help tackle climate change and protect the countryside, including £800 million a year by 2010 for flood defences.

The climate change levy will rise in line with inflation next April, and the fuel benefit charge on company car tax will be uprated.

He said he wanted Europe-wide agreement to a lower rate of VAT for the most energy-efficient products. He propsed a level of 5 per cent in Britain and will bring forward proposals in the Budget to encourage the next generation of cleaner cars and incentives for people to buy them.

From 2009, duty will be levied not on passengers but on airline flights, to encourage more efficient use of planes.

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