Brown's No 10 Budget: Chancellor draws up battle lines with Cameron

Gordon Brown eagerly drew the battle lines for a general election between him and David Cameron yesterday as he unveiled a Budget that was heavy on politics but light on economics.

Presenting his tenth, and possibly last, Budget, the undisputed prime minister-in-waiting contrasted his plans to invest more in public services, notably education, with Mr Cameron's goal of cutting taxes.

Mr Brown deliberately expanded pet projects opposed by the Tories to highlight his dividing lines with them - the climate change levy on business, the child tax credit, child trust funds for new-born babies and the "new deal" for the jobless.

Mr Brown set out his personal long-term priorities by announcing an ambitious goal of raising average spending on each child in state schools from £5,000 a year to the £8,000 a year enjoyed by those educated in the private sector. Although falling school rolls will make that it easier than it looks, it could still take 15 years or more to achieve.

He boosted capital investment in schools from £5.6bn to £8bn over the next five years to improve computer systems and buildings. A further £440m will be paid direct to school heads - worth £190,000 for the average secondary school. He hailed "a Budget for Britain's future to secure fairness for each child by investing in every child". He also sought to derail Mr Cameron's campaign to win the green vote. A shake-up of road tax will see new owners of the most polluting 4x4s and other "gas guzzlers" pay a new top rate of £210 a year, while drivers with cleaner engines will have their duty cut from £75 to £40 and those with the "greenest" vehicles will pay nothing.

Even Mr Brown's jokes were aimed at Mr Cameron - and the Tories saw his desire to match spending in private schools as a sign he will remind voters of the Tory leader's Eton education.

Facing Mr Brown across the dispatch box for the first time, Mr Cameron described his rival as a "fossil-fuel chancellor" in a carbon-conscious world and "an analog politician in a digital age."

Rehearsing his own election pitch, the Tory leader said: "What we've got is a chancellor who has taxed too much, borrowed too much and is the roadblock to reform. He is a politician completely stuck in the past."

The Tories pledged to support the £440m boost for schools but Mr Brown drew some blood when they could not say whether they shared his goal of closing the spending gap between state and privately-educated pupils.

Theresa Villiers, the Tories' shadow Chief Treasury Secretary, said that was "not the answer" and her party would spend less on education than Labour -remarks seized on by Labour as evidence of Tory public spending cuts.

To protect frontline spending on health and education, the Chancellor signalled a tough settlement for other departments in next year's review of government spending in which they will be expected to cut administrative costs. There will be a squeeze on public sector pay and £30bn of asset sales to help balance the books.

Mr Brown chose to ignore the cash crisis at some hospitals by virtually ignoring the National Health Service. Another notable absence was a repeat of last year's £200 cushion to reduce the council tax bills for over-65s, while green groups noted the absence of measures to reduce the damage caused by air travel.

Sir Menzies Campbell, the Liberal Democrat leader, described the Budget as a missed opportunity. "He could have tackled the unfair tax system. He could have made the environment a priority. He could have faced up to the pensions crisis. He could have addressed the problem of personal debt. He has declined to do any of these. This is a legacy from which it will be difficult for him to escape," he said.

In a neutral Budget, Mr Brown boasted that under his stewardship the economy had seen an unprecedented 10th year of consecutive growth. However, the City was left scrabbling for clues about Mr Brown's tax and spending plans after it became clear that it did little to alter either his forecasts for either economic growth or public spending.

"In economic terms, this was one of the least significant Budgets in living memory," said Roger Bootle, economic adviser to the accountants Deloitte."This was a political Budget and a piece of parliamentary theatre, rather than an exercise in economic management."

One economist pointed out that the Chancellor focused on all the "Es", environment, education, employment and energy, except one - the economy.

"Who needs a cabinet, when you've got Gordon Brown?" asked Douglas McWilliams, chief executive of the City analysts CEBR. "At times, the speech covered policies one might expect to be announced by the Foreign Secretary, Jack Straw, or another of his ministerial colleagues. But what was lacking from today's performance was much economics."

Mr Brown left his growth forecast year unchanged at 2.25 per cent - after last year's 13-year low of 1.7 per cent. He also stuck with his upbeat forecasts for 3 per cent growth in 2007 and 2008.

He added £2bn to his borrowing plans for the coming financial year but took that back by cutting £1bn off each of the following years. He claimed he would meet his "golden rule" on the public finances by £16bn.

Economists challenged the figures, saying they were based on over-optimistic forecasts for both growth and tax revenues. Peter Spencer, an adviser to the Ernst & Young ITEM Club economic model, said the Budget report showed the Treasury had cuts its receipts forecast by 7.5 per cent since the 2005 Budget.

Mr Spencer said: "He simply has not the £16bn margin that he claims. These figures are far too optimistic. The leeway is non-existent and he is relying on cyclical adjustments to get himself out of trouble."

He added that the acceleration in growth could not come from consumers, who face a burden of debt and higher energy and council tax bills.

Michael Saunders, chief UK economist at Citigroup, said the Budget left unanswered key questions about the medium-term outlook. He said the new figures showed real spending growth slowing to 3 per cent in the coming year, followed by 2.6 per cent in 2007/08 and to 2 per cent after that.

"The Budget did not get us any closer to an answer to the key challenge - how can the Labour Government achieve its social aims while sticking to the Budget numbers, which indicate a sharp slowdown in real public spending growth," he said.

"If those spending numbers from 2008 onwards are implemented without improvements in public sector efficiency and cost control, then the result will be a marked deterioration in public services."

* Treasury Budget site

* Chancellor's Statement in full