Brown cuts income tax

Income tax is to drop two pence to 20p in the pound, Gordon Brown announced this afternoon in his final Budget speech.

See also: Your views: Budget 2007

But the Chancellor clobbered drinkers, smokers, and motorists - particularly drivers of gas-guzzling cars and 4x4 vehicles.

Mr Brown raised the price of a packet of 20 cigarettes by 11p from 6pm today.

By contrast, the shock income tax cut will not apply until next April.

Beer drinkers will face an increase in duty of 1p a pint, wine goes up by 5p a bottle and sparkling wine by 7p.

But the tax on whisky, gin, vodka and other spirits will again be frozen.

Fuel duty will rise by 2p a litre, but will be delayed until October. It will be followed by increases of 2p next year and 1.8p in 2009.

Road tax on cars with the highest carbon emissions such as 4x4s and sports cars will rise by £90 to £300 this year, and by a further £100 in 2008 to £400.

However, the rate on low carbon emission cars will be cut from £50 to £35, and the zero rate will remain for the cleanest engines of all.

Mr Brown poured scorn on David Cameron's proposals for increases in air taxes and tax breaks for married couples.

But the Conservative leader responded by declaring: "At last he's given us a tax cut. He usually does it before an election, now he's in such a deep hole, he has to do it before a leadership election."

Mr Brown announced a 15 per cent increase in child benefit to £20 for the first child in 2010, while the tax free allowance for pensioners will go up to £9,970.

The Chancellor cheered business by announcing a cut in corporation tax from 30p to 28p.

He also said that education spending would rise to £74 billion by 2010.

The intelligence services will be boosted by an extra £86 million , bringing the total to a record £2.25 billion, and the armed forces will get an exrtra £400 million this year, with most of the cash going to Iraq and Afghanistan.

The National Health Service will receive £8 billion more in 2008 than this year - the biggest cash increase ever, amounting to a seven per cent rise in real terms.

The Chancellor pledged to maintain discipline in public sector pay and added: "We will not return to old boom and bust."

by John Hipwood