by Chris McLaughlin
ALISTAIR DARLING launched the Governmentâ€™s fightback in his first big outing as Chancellor with a programme that promised a slowdown of public spending and the battle to eliminate child poverty while taking a gentle tilt at City â€œfat catsâ€.
In a package which sought to match Tory tax pledges, Mr Darling raised the threshold for inheritance tax, closed loopholes for wealthy non-domiciles and hit private equity bosses with a small increase in tax on their unearned income.
Under Tory taunts that David Cameron and Shadow Chancellor George Osbourne were now in charge of the political agenda, Mr Darling produced a promise of increasing spending on health and education, but at up to half the current rate of increase.
Other areas, such as the drive to eliminate child poverty, welfare and pensions are expected to suffer real cuts in expenditure.
In a statement in support of his first comprehensive spending review, entitled meeting the aspirations of the British people, Mr Darling said: â€œThere are new commitments for people of all age groups and in all parts of the country.â€
He contrasted the Tory plans to â€œspendâ€ Â£2 billion raising the inheritance tax threshold with his plans to spend the equivalent on: building an extra primary school in every local area by 2010; building 20 new hospitals , 150 new walk-in centres; create 100 new GP practices ; providing a regular check up for every patient on the NHS.
The Chancellor downgraded the official forecast for growth in the British economy in 2008 from 2.5 to 3 per cent to 2 to 2.5 per cent at the same time raising public borrowing by Â£7 billion to Â£36 billion, warning of a â€œturbulentâ€ period ahead. The package was seen as an attempt to wrongfoot the Tories at the same time as continuing investment in the NHS and the education service.
He doubled the threshold on inheritance tax to Â£600,000 and backdated the scheme to benefit three million widows and widowers. NHS spending will increase from Â£96 billion a year to Â£110 billion over the next three years, or 4 per cent above inflation, while education spending will rise 3 per cent, including Â£250 million for one-on-one tuition.
International aid will reach Â£9 billion a year by 2010, including a doubling in aid to Africa since 2004.
An extra Â£400 million will be made available for the wars in Iraq and Afghanistan. In another attempt to pull the rug from under the Tories Mr Darling announced that air travel will be taxed by plane rather than by passenger to encourage airlines to fill seats.
And in a move which went only some way to meet calls for fair taxes on private equity bosses, the Chancellor increased capital gains tax on â€œtaper reliefâ€ earnings from 10 per cent to 18 per cent.
But tax experts immediately claimed the City â€œfat catsâ€ were breathing a sigh of relief and that the measures would hit small companies, investors and employees hardest.
A little-noticed announcement lifts the threat of a punitive levy on hedge funds, lifting one of the biggest barriers to hedge funds basing themselves in the UK.
Rich â€œnon-domsâ€ face a Â£30,000 flat rate tax to avoid paying the full rate of tax on their overseas income and capital gains, but not for seven years.