Alistair Darling imposed big tax rises on drinkers and motorists in his first Budget to raise money to tackle child poverty and give pensioners a one-off bonus.
The Chancellor raised his borrowing forecast by £20bn over the next four years to compensate for the slowdown in the global economy. He is gambling on a worldwide recovery by the middle of next year to balance his books.
With his room for manoeuvre curtailed by the slowdown, Mr Darling sought to make a virtue out of repeatedly offering "stability" in uncertain times as he tried to recover the reputation for competence he lost when his pre-Budget report last October unravelled. He insisted that Britain would emerge stronger from the downturn than its competitors.
The Tories accused Mr Darling of bringing in "stealth taxes" after he raised the price of a pint of beer by 4p from Sunday, added 3p to a litre of cider, 14p to a bottle of wine and 55p to a bottle of spirits – the first increase for spirits since Labour came to power in 1997. Alcohol duties will rise by 6 per cent on top of inflation now and by 2 per cent more in future years. The price of a packet of 20 cigarettes increased by 11p last night.
Motorists escaped an immediate rise in petrol prices, with a 2p-a-litre increase due next month postponed until October. From next year, a shake-up of road tax will raise duty for gas-guzzling cars and cut it for vehicles with low emissions. From 2010, there will be a new "first year" extra tax of up to £950 for the most polluting cars.
The Tories warned that ordinary families would be caught, not merely rich people driving 4x4s. They said "Mondeo man", the archetypal voter who switched to Labour in 1997, would be hit, since the first-year road tax for a Ford Mondeo two-litre diesel would be £425.
Treasury officials admitted the "green" motoring taxes had been delayed because increasing them this year would risk an even sharper slowdown. Mr Darling revised his growth forecast for this year from the 2 to 2.5 per cent he predicted last October to between 1.75 to 2.25 per cent.
The delays disappointed environmental groups. Russell Marsh of the Green Alliance, said: "Despite all the pre-Budget spinning this was not a green Budget and fell painfully short of what was required. The Chancellor says that our greatest obligation to future generations must be to tackle potentially catastrophic climate change, but there is nothing in this Budget to indicate that he means it."
Mr Darling made child poverty his personal priority, pledging to lift 250,000 children above the poverty line by raising tax credits and bringing forward by a year a rise in child benefit to £20 a week for the first child, which will now happen in April next year. He also promised to change rules on housing and council tax benefit which are widely seen as a barrier to jobless people returning to work.
However, Mr Darling stopped short of promising that Labour would hit its target of halving child poverty by 2010. Privately, ministers expect it to be missed and are concentrating on the longer term goal to abolish it by 2020.
The Chancellor said nine million pensioner households would benefit from his announcement that the winter fuel payments would rise from £200 to £250 for over 60s and from £300 to £400 for over 80s. For now, the increase is for next winter only as there is no provision for it in his spending plans for future years.
Mr Darling signalled that the halving of the growth rate for public spending over the next three years will continue for the following two years. Labour sources said the spending plans would deny the Tories as much scope as possible to set out a distinctive agenda at the next election and that ministers would now challenge them to answer the "what would you do?" question.
The Tories believe the Budget will backfire and accuse ministers of failing to understand the rising living costs. "This is a bad news Budget which kicks Britain's families when they're down," said George Osborne, the shadow Chancellor.
Opposition parties seized on a borrowing total of £140bn over the next four years, some £32bn more than Gordon Brown forecast in his final Budget a year ago, to accuse the Prime Minister of "economic incompetence".
TOBACCO Packet of cigarettes up 11p; five cigars up 4p.
ALCOHOL 4p on a pint of beer, 3p on a litre of cider, wine up 14p a bottle, Spirits up 55p a bottle.
ECONOMY Growth estimated at 1.75 per cent to 2.25 per cent.
PENSIONS Winter fuel payment for over-60s up by £50; for over-80s up by £100.
TRANSPORT Planned 2p duty rise on fuel postponed to October.
BUSINESS Capital gains tax to remain at 10 per cent.Reuse content