We won't cut hospital funds, says shadow chancellor Osbourne

The Shadow Chancellor pledged to match Labour's spending plans for the next three years, to head off claims that David Cameron plans to lurch to the Right.

The next Conservative government would increase spending in line with Labour - two per cent in real terms from £615 billion to £674 billion in 2010-11.

Mr Osborne said this would make 'headroom for substantially lower taxes' over this period - paid for by growth in the economy, not by cutting public spending.

There will be no upfront promises of tax cuts at the election, but taxes on income would reduce in return for higher levies on pollution.

Gordon Brown could no longer use the 'tired old attack' that the Conservatives would risk the stability of the economy by reducing spending on the Health Service and schools, he said.

But the Chancellor, Alistair Darling, accused the Conservatives of being 'increasingly desperate', saying the 'sums don't add up'.

Mr Osborne wrote in the Times: "The result of adopting these spending totals is that under a Conservative government there will be real increases in spending on public services, year after year.

"The charge from our opponents that we will cut services becomes transparently false.

"At the same time the share of national income taken by the state will start to fall, as the economy grows faster than the government does."

Labour and the Tories have battled over tax and spending as speculation about a snap autumn election increases.

Last month a review of economic policy by former Tory minister John Redwood called for inheritance tax to be scrapped.

Ministers said this would lead to £21 billion of cuts for schools and hospitals. The Tory leader retaliated with a campaign against hospital closures under the government.

A separate Tory policy review later this month will call for rises in green taxes, including aviation duty and higher car tax.

Mr Osborne has already broadly endorsed the report by warning that reductions in income taxes, and tax breaks for married couples, could only be paid for by environmental taxation.

He told Radio 4's Today programme: "We are going to shift taxes generally from income to pollution. There's going to be a green tax shift which is right for the environment and also makes economic sense."

Mr Darling said: "This is the latest panicked response from the Conservative Party who have simply not thought their arguments through."