Darling cuts inheritance tax

Delivering his first Pre-Budget Report, Mr Darling announced the couples' allowance for inheritance tax would be doubled from £300,000 to £600,000 - rising to £700,000 by 2010.

At the same time he told MPs that he was raising investment in the NHS in England from £90 billion to £110 billion over the next three years - with extra cash going to the devolved administrations in Scotland, Wales and Northern Ireland.

After a bruising few days for the Government in the wake of Gordon Brown's decision to abandon his general election plans, Mr Darling said he was offering an "affordable" tax cut combined with extra funding for schools and hospitals.

But his statement drew a scathing response from the Tories - who dismissed it as a "pale imitation" of their own plans to exempt all estates up to £1 million from inheritance tax. Shadow Chancellor George Osborne dismissed the plan as a "desperate cynical stunt from a desperate and weak Prime Minister".

"I don't know why he even bothered to turn up. He should have called that election and let us give the budget. Instead we had a pre-election budget without the election," he declared to Tory cheers. "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."

The Tory plan to cut inheritance tax - announced last week at the party conference in Blackpool - was widely credited for the party's recovery in the opinion polls which persuaded Mr Brown to his plans for an election.

In a highly political statement, Mr Darling attacked the Tory proposal to pay for the cut with a flat rate £25,000 charge on wealthy, "non-domiciled" foreigners living in the UK who do not pay British taxes. He said that the levy would raise just £650 million - far short of the £3.5 billion the Tories claimed.

However he faced opposition jeers of derision when he announced his own plans to impose his own charges on "non doms" who have been in Britain for seven years - with a higher rate for those who had been the country for 10 years.

The Chancellor, who was also setting out the final stages of the three-year comprehensive spending review (CSR), said NHS spending would increase by 4%-a-year in real terms over the period. Education will also benefit, with Mr Darling promising an additional £250 million for "personalised" learning in schools, on top of the CSR settlement already announced by Mr Brown when he was Chancellor.