INHERITANCE TAX

The Chancellor of the Exchequer sought to undermine the Conservative’s policy to increase the inheritance tax (IHT) threshold to £1 million by proposing that the current £300,000 allowance be transferable between couples, effectively doubling the amount a husband or wife can bequeath without paying tax.

Until today, a husband and wife were allowed to transfer an unlimited amount of money between each other when one spouse died without paying IHT. However, when the surviving spouse died, the estate was taxed at 40 per cent above £300,000. From today, the surviving spouse will be able to bequeath £600,000 tax-free. By 2010, this figure will increase to £700,000.

The new rules will also apply to people in civil partnerships. The Chancellor said he would backdate the rules so every widow or widower alive today will be able to benefit from the increased threshold. The Treasury expects the proposals to cost £1.4 billion a year. Andrew Ellson, Personal Finance Editor

PRIVATE EQUITY

Alistair Darling moved to close controversial tax loopholes used by private equity bosses by scrapping capital gains tax relief from next April. In its place, the Chancellor said there would be a set rate of 18 per cent for all capital gains tax.

The move will come as a blow to private equity bosses who have been attacked by politicians, unions and the media for exploiting tax loopholes that allow them to categorise the bulk of their carried interest - or profits - as capital gains. Because capital gains tax is subject to taper relief in many cases it means private equity partners end up paying as little as 10 per cent or less tax on the bulk of their profits. The government announced a review into private equity taxes and taper relief earlier this year but Mr Darling had signalled he would take no drastic action. Siobhan Kennedy, M&A Correspondent, The Times

NON-DOMS

The Chancellor promised to consult on introducing early legislation on non-domiciled taxpayers, as a first step to introducing a tax charge after seven years, then a higher rate after 10 years. Non-doms must "pay their fair share", he said.

Mr Darling said that he would also prevent people from claiming they were out of the country when they were actually in the UK, and from disguising income as capital. The new measures will raise about £650 million in extra tax payments, he said. The Chancellor derided recent Conservative proposals to raise £3.5 billion from a £25,000 flat-rate charge on non-doms, which he said would raise just £650 million. Christine Seib, Banking Correspondent, The Times

TRANSPORT

The Government gave the formal go-ahead to a series of road-widening projects and also to Crossrail. The Department for Transport's (DfT) budget will grow by 2.25 per cent in real terms, increasing from £20 billion in 2007-08 to £23.7 billion by 2010-11.

Motorways such as the M1 and M25 will be widened and the DfT is also putting aside an extra £15 billion for railways. This includes provision for Crossrail, the cross London rail link that will begin construction in 2010. For the over 60s, the government also announced free off-peak bus travel. David Robertson, Business Correspondent, The Times

SMALL BUSINESS

Alistair Darling briefly mentioned a review of the tax system for self-assessment and small businesses, details of which have yet to be fleshed out. In addition, the Government published findings of a review on the case for closer alignment of income tax and National Insurance, something it outlined in the 2006 Budget.

The findings of the review, published today, particularly focused on a proposal, often put forward by employers, to make National Insurance Contributions operate in a similar way to tax by moving it onto an annual basis and collecting it cumulatively. Although, on balance, the Government has concluded that the potential savings for employers are lower than might have been expected, and the costs and benefits that would result do not justify making this change. Helen Nugent, The Times

FAMILY BUSINESS

Alistair Darling confirmed he will crack down on "income-splitting" arrangements which underpin hundreds of thousands of husband-and-wife companies. Family businesses commonly split ownership between a husband and wife and then pay one spouse a low salary so they become a basic rate taxpayer.

Mr Darling said: "The Government believes it is unfair for one person to arrange their affairs so that their income is diverted to a second person, subject to a lower tax rate, to obtain a tax advantage (income shifting)." Elizabeth Colman

EDUCATION

Alistair Darling has found an extra £250 million for schools over and above the education settlement announced in the Budget last March. The money is destined to help schools introduce a new personalised approach to learning, involving catch-up classes for stragglers as well as extension lessons for the most able. It may also help the Prime Minister, Gordon Brown, pay for the “personal tutor for every pupil at secondary school” he promised at Labour’s annual conference last month. A t a time of governmental belt-tightening, the education sector has received a relatively generous settlement with spending rising from £63.8 billion in 2007/08 to just over £74 billion a year by 2011. This money, most of which was announced in March, represents an increase of 2.7 per cent a year above inflation, but it will effectively halve rate of growth experienced every year since 1999. The settlement brings education spending up from 4.5 per cent of gross domestic product in 1997 to 5.6 per cent this year. The figure is expected to flatline after that. This level of spending puts the UK only marginally higher than the average figure for education as a percentage of GDP in the OECD, leaving the UK lagging behind countries such as Belgium, Finland and Poland. Alexandra Frean, Education Editor of The Times

HEALTH

Health spending in England is set to increase by 4 per cent a year in real terms - rather higher then expected but well below the 7 per cent levels of the past few years. The long-run average increase, through Conservative and Labour governments, has been 3.5 per cent a year. So this settlement is a good one for the NHS. The issue will be whether this is enough, given that the NHS ran into financial difficulties even when funding was rising at more than 7 per cent. Nigel Hawkes, Health Editor of The Times

WHITEHALL

Whitehall departments and townhalls will be expected to make £30 billion in efficiency savings over the next three years, the Chancellor has announced. This is a third more than the £20 billion savings over the last three years which led to the loss of nearly 70,000 civil service posts since 2004. All departments and councils will be expected to make 3 per cent savings over the next three years. Unions warned that the new targets would lead to cuts in services, privatisation and more job losses. The Public and Commercial Services Union is already considering industrial action over the last round of job losses and threats to civil service pensions. But while departments claimed they have laid off thousands of staff there is also evidence that more money is being spent on interim staff and management consultants who are employed by Whitehall for short term projects but are not counted in civil service statistics. Government officials argue that money has been saved by merging departments and streamlining office functions such as finance, human resources and IT. Jill Sherman, Whitehall Editor of The Times

LOCAL GOVERNMENT

Council tax bills are expected to rise by at least 5 per cent next year following a tight settlement for townhalls in England and Wales. Local authorities have only been given one per cent extra in the next three years leading to a total grant of £26 billion in 2010. The Chancellor warned that townhalls would be expected to keep council tax rises below 5 per cent. But the Local Government Associations warned last night that social services would have to be squeezed and council tax would go up to keep pace with new commitments. These include pressures to keep down landfill tax by increasing recycling targets as well as providing services for a growing elderly population. Jill Sherman, Whitehall Editor of The Times

WELFARE

Lone parents on benefits who receive child maintenance from a former partner will be able to keep more of the cash. From October 2008, they will be able to keep £20 a week, and from April 2010 £40 a week. Under current rules, lone parents give back all but £10 a week of income support if they get child maintenance. That is often used as an excuse by absent fathers not to pay maintenance. They argue their partner will only lose out on benefits if they pay up. Rosemary Bennett, Social Affairs Correspondent of The Times

POLICE AND SECURITY

An extra £1 billion is to be spent over the next three years on the counter terrorism and intellligence budget which will take spending to £3.5b by 2010/11, Mr Darling announced. The cash will be in a single budget which will cover the work of the police and intelligence services. The only extra money given to the Home Office is £700m over the next three years which is being ring fenced for counter terror measures. The Chancellor confirmed the settlements for the Home Office and Ministry of Justice announced last year which means their budget will rise by 1.1 per cent a year in real terms - effectively a freeze.

Mr Darling's announcement heralds much tighter times for the police and prison service which are facing huge pressures including the roll out of neighbourhood policing into every area and the need to meet an rising jail population. The Chancellor's statement confirmed that the Govenrment is going ahead with plans to build an extra 9,500 prison places by 2012 with new jails built and run by the private sector. Richard Ford, Home Correspondent of The Times

ENVIRONMENT

A duty per plane instead of per passenger from 2009 should encourage airlines to fly fewer empty and half-full aircraft and so reduce carbon emissions from the aviation sector. This should play well with budget airlines and voters for whom the duty has been a source of resentment. The interim King Review will increase pressure on the transport industry to improve the fuel efficiency and carbon emissions of cars. The budget increase for Defra is likely to be damned as far too little by the environmental lobby. Lewis Smith, Environment Reporter

CHILD TAX CREDIT

The Chancellor announced a boost to the payments families will receive through Child Tax Credits on the same day that the system was attacked as "unduly harsh" by the Parliamentary Ombudsman.

The child element of the Child Tax Credit, currently £1,845 for each child, was already set to rise by £150 to £1995 in April 2008. Now, in his Pre-Budget Report, Mr Darling added a further £25 to that figure, taking the total to £2,020, plus any indexation for inflation. He also promised a further £25 in April 2010, over and above any inflation increase.

HIs modest boost to tax credits coincides with the publication of a report by Ann Abraham, the Parliamentary Ombudsman, which says that inbuilt flaws in the system of calculating tax credit awards has led to the overpayment of billions of pounds each year, followed by a Revenue push to claw back the overpaid money, resulting in distress and hardship for many low income families. Mark Atherton, Reporter, Times Money

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