A fresh era emerges in British politics

Gordon Brown put his record on the line yesterday. David Cameron will become Tory leader today. The countdown to the general election is already under way

The countdown to the general election began yesterday, only seven months after the last one, when Gordon Brown drew the battle lines for his expected contest with the new Tory leader David Cameron.

In his pre-Budget report, the Chancellor raised his tax take from North Sea oil by more than £2bn a year, helping him to balance the Government's books in two years, by which time he hopes to be Prime Minister.

The move, combined with a tight squeeze on future public spending, could also enable him to avoid the income tax increases that the Tories claim are inevitable. By the 2009-10 financial year, the most likely time of the next election, Mr Brown forecast that the public finances will be £11bn in surplus.

Mr Brown acknowledged it had been his "toughest and most challenging year" as he halved his forecast for growth this year from a maximum 3.5 per cent to just 1.75 per cent and increased borrowing from the £31.9bn he predicted in March to £37bn. But he still found room to announce that the £200 winter fuel payment for pensioners will continue until the next election, outline plans to install central heating and insulation in the homes of old people, and pledge to build more homes - particularly for first-time buyers - and maintain the freeze in petrol duty.

Mr Cameron, the shadow Education Secretary, is expected this afternoon to become the Tories' fifth leader in eight years. The result of the ballot of the party's 250,000 members, which closed yesterday, is likely to give him a comfortable victory over his rival David Davis.

Yesterday's Commons statement by Mr Brown began a new era in politics - he clearly had Mr Cameron in his sights. The Chancellor mocked Mr Cameron's economic strategy, "sharing the proceeds of growth" between public spending and tax cuts, warning it would have meant spending £12bn less this year and £19bn next year. Signalling that the choice between Labour investment and Tory spending cuts would be a key election battleground, he said Mr Cameron's "rebranded" policy was a "a new gloss on an old proposal" that would undermine Britain's public services, infrastructure and economy.

At the same time, Mr Brown stole some Tory clothes by announcing a scheme to enable young people to take a gap year after school to do voluntary work in Britain or abroad, financed partly from the more than £500m left unclaimed in dormant bank accounts for 15 years. That mirrored plans set out by Mr Cameron last week for a national school-leaver programme.

In a foretaste of the battle ahead, Mr Brown locked horns in the Commons with another young Tory turk, the 34-year-old shadow Chancellor, George Osborne, who is Mr Cameron's closest political ally and ran his leadership campaign. Mr Osborne won plaudits from Tory MPs for a highly personal attack on the Chancellor but Labour MPs said Mr Brown exposed the inexperience of his opposite number when he hit back.

The new generation of Tories sense a chink in the armour of the "Iron Chancellor" that they believe will dent his prospects of leading Labour to a fourth successive election victory. Mr Osborne said the lower than expected growth this year showed his reputation was "crumbling" and made clear the Tories would portray him as a figure of the past.

Mr Osborne added: "The country needs a chancellor who is interested in reforming Britain for the future not in defending his failed policies of the past. But this chancellor is the roadblock to reform, a chancellor from the last century who has run out of ideas."

The small print of the pre-Budget report suggested Mr Brown would impose a tight rein on public spending after a wholesale review in 2007 that will map out Labour's programme for the next 10 years. He has pencilled in an overall spending rise of 1.9 per cent a year, less than the forecast growth in the economy as a whole and a departure from the big rises in recent years.

The Chancellor is already working on the review and is warning departments outside health and education he will adopt a "year zero" approach to budgets. The squeeze would make it easier for Labour to avoid tax rises and potentially harder for Mr Cameron to find room for tax cuts.

Mr Brown doubled the supplementary tax on North Sea oil companies from 10 per cent to 20 per cent, provoking outrage from the oil companies but judging that they were a soft tax-raising target because of motorists' anger about rising fuel prices. The Scottish National Party accused him of using "Scotland's black gold" to fill his "black hole". Alex Salmond, the SNP leader, warned that thousands of jobs would be at risk as the Government's oil revenues rose to £11.7bn next year, a 20-year high.

The Tories denied Mr Brown's strategy would enable him to avoid tax increases. They warned that his downgraded growth forecast for this year would create a tax shortfall of £32bn over five years, the equivalent of £1,200 per household or 1.5p on the basic rate of income tax.

The Government said local authorities would receive an extra £1.1bn to keep the increase in council tax bills down to a maximum of 5 per cent in April. Town halls had warned bills would rise by 10 per cent and ministers were alarmed Labour could pay a heavy price at local elections in May.

In a U-turn on his tax credit scheme, Mr Brown said claimants will be able to see their incomes rise by £25,000 before they have to tell the Government. At the moment, claimants should see their credits stop if their incomes rise by just £2,500.

Vince Cable, Treasury spokesman for the Liberal Democrats, said: "The Chancellor has demonstrated his talent for producing rabbits from hats while disregarding the long-term challenges. He asked Mr Brown: "Why can you not say: 'I have made mistakes, we've exaggerated the projections, there has been administrative over-centralisation'? Why can you not stand up and acknowledge your own failures?"