Brown makes education his priority but green lobby is left disappointed

Gordon Brown has put education at the top of his agenda by announcing a £36bn plan to rebuild schools and pledging to make Britain's children the best educated in the world.

The Chancellor and Prime Minister-in-waiting mapped out a key dividing line for the next general election by promising to put investment in public services ahead of tax cuts. He claimed the Tories would reduce spending by £28bn a year on the nation's "vital priorities" to reduce taxes.

He pre-empted his government-wide spending review by using his pre-Budget report to raise the education building programme by 4 per cent on top of inflation, to provide 12,000 new or completely refurbished schools over the next four years. Heads of a typical primary school will receive a direct payment of £50,000 from next year and a secondary £200,000.

Day-to-day spending on schools will be increased by about 4 per cent in real terms in next year's review. Although the health and security budgets will also be protected, the top priority given to education leaves other Whitehall departments facing a tough squeeze because overall public spending will grow by less than 2 per cent in real terms from 2008.

In what was almost certainly his last pre-Budget report before he succeeds Tony Blair next year, Mr Brown steered a middle course on green taxes. He doubled air passenger duty, to £10 on short-haul flights in February, to raise £1bn and to help combat climate change. And he announced the first rise in petrol duty for three years, increasing the price of a litre by 1.25p from midnight last night.

But he disappointed environmental campaigners by refusing to restore inflation-plus rises in fuel duty and failing to impose higher road tax on gas-guzzling vehicles. His cautious approach leaves the Tory leader David Cameron the space to put forward a more radical package to enhance his green credentials. But Mr Brown is convinced that the Tories will not find a "pot of gold" with which to fund tax cuts without imposing politically-impossible measures such as increasing VAT on domestic power.

Mr Brown said that growth this year would be 2.75 per cent, not the 2.5 per cent he predicted in March. He forecast growth of between 2.75 and 3.25 per cent next year, but revised down his prediction for 2008 and raised borrowing forecasts by between £1 and £2bn a year over the next five years.

Tories dismissed the package as "all smoke and mirrors". George Osborne, the shadow Chancellor, said Mr Brown was "obsessed about securing his next job". He added: " All this borrowing comes despite the biggest tax increase in our peacetime history."

Vince Cable, the Liberal Democrats spokesman, said Mr Brown would leave a legacy of high personal debt and massive spending public commitments.

The detailed figures show that the Government will take an extra £7bn in tax - mainly from air travellers - over the coming five years and increase borrowing by the same amount.

Chancellor's main points

* Air passenger duty doubled from £5 to £10

* Fuel duty rises by inflation at midnight - up 1.25 pence per litre.

* Direct payments to schools up to £50,000 for primaries and £200,000 for secondaries

* Investment in school, college and university buildings will rise to £10.2 billion by 2010

* New target for 90 per cent of adults to gain the equivalent of five GCSEs

* £60m for applied university research

* Extra £600m for operations in Iraq and Afghanistan

* Target for all new homes to be zero-carbon within a decade. Stamp duty waived for new zero-carbon homes.