The chancellor fired the first major shot in Labour's re-election campaign yesterday with a Budget offering to cut bureacracy to fund schools, hospitals and defence.

Central to his statement were moves to reduce the civil service payroll by over 40,000 jobs - to be partially achieved through the merger of the Inland Revenue and Customs & Excise.

Throwing down the guantlet to the Tories just 15 months short of the likely general election date, Brown said Labour's choice was "more investment not less".

Ahead of the summer spending review, and the final outcome of the Gershon review, Brown signalled that there would be an additional 8.5 per cent in the education budget - although opinion is divided on what percentage of the cash is actually new.

Brown also pledged real terms increases in spending on defence, the Home Office and transport - although all departments are set to come under pressure to reduce back office costs.

Worst hit is the Department of Work and Pensions which is being forced to reduce 30,000 jobs - prompting anger from civil service unions.

Voters

For voters the chancellor announced, as expected, a £1.5 million limit to pension funds.

The over 70s will receive a further £100 this winter - a move seen as an attempt to calm anger over inflation busting increases in council tax.

Smokers and drinkers face an extra penny on a pint and eight pence on a packet of 20.

Following record increases in house prices, the chancellor increased the starting point for inheritance tax to £263,000.

And he signalled that the government is set to adopt the Barker review's recommendations to deliver over 100,000 new homes every year - putting off, however, a decision on a windfall tax on the profits from land sales.

Economy

On the economy Brown predicted that three per cent growth would be recorded this year, with borrowing for this year forecast at £37.5 billion.

He said growth over the last year - 2.3 per cent - had been well within his targets.

The chancellor said his spending plans were sustainable and insisted that stability had been "locked in" to the UK economy for the first time in decades.

Business

For business the effect of the Budget was largely neutral - with corporation tax, capital gains and insurance premium tax all frozen.

But Brown signalled that he was set to get tough on tax dodges on partnerships, finance leases and VAT - although he opted for a system of disclosure rather than a more onerous anti-tax avoidance regime.

The Tories, however, slammed the chancellor's Budget plans, warning that borrowing was now at unsustainable levels.

Politics

Conscious that Brown was pledging to reduce the waste identified by Oliver Letwin, Michael Howard dubbed him as the "credit card chancellor".

"If everything is going so well, why does he have to borrow so much," said the Tory leader who went on to warn that the country would "pay later".

The Commons clash leads many to conclude this morning that the general election campaign starts here.

But the Tories welcomed Brown's announcement that the euro tests will not be re-run this year.

Despite committing the government to an annual review of the UK's preparedness, the chancellor's comments were widely seen as evidence that UK membership is off the agenda for the timebeing.