Budget Highlights

• Income tax cut from 22% to 20%

• Corporation tax reduced from 30% to 28%

• Increase in R&D tax credit

• New Annual Investment Allowance of £50,000

• Inheritance tax threshold rising to £350,000 in 2010

Delivering his eleventh – and what is widely expected to be his last – Budget speech to the House of Commons, Chancellor Gordon Brown pledged to 'expand prosperity and fairness' for Britain's families.

Celebrating what he described as the longest period of economic stability and sustained growth in the UK's history, the Chancellor made few changes to his previous economic growth forecasts, predicting growth of 2.5% to 3% for 2008 and 2009, and asserting that his fiscal rules had been met with a surplus of £11bn.

While much of the speech was devoted to education and the environment, the Chancellor found room for some significant announcements on tax, ending his speech with the surprise declaration that the basic rate of income tax will drop from 22% to 20% from April 2008; although this will be accompanied by a scrapping of the 10% starting rate. The threshold for the top rate of income tax will also rise to £43,000 in 2009.

In addition to this, the headline rate of corporation tax will fall from 30% to 28% in 2008. However, the rate for small companies will be increased in three stages, reaching 22% in 2009.

Other measures include an increase in the tax-free cash ISA allowance from £3,000 to £3,600, and a rise in R&D tax credits, from April 2008. Vehicle Excise Duty on large 'gas guzzling' vehicles will almost double to £400 by April 2008, while drivers of the cleanest cars will see a corresponding cut. A 2p increase in fuel duty will be postponed until October.

Economic forecasts for 2007/08