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Alistair Darling cut corporation tax and promised to overhaul capital gains and inheritance tax as he made his first pre-budget report since taking over as Chancellor of the Exchequer.

Darling stepped into Gordon Brown’s sensible shoes just as the world economy started to get all wobbly, with a global credit crunch coinciding with righteous indignation over the pay packets reeled in by the masters of the universe running the financial markets, particularly in the private equity and hedge fund sectors.

This afternoon, Darling insisted the UK was well-placed to weather the current global economic uncertainty. He said growth would hit 3 per cent this year. However, growth next year will be lower than previously forecast at between 2 per cent to 2.5 per cent. The following year, he predicted, it will bounce back to 2.5 to 3 per cent.

Darling went heavy on innovation and IP. He might have surprised some in the UK’s tech sector by claiming that UK investment in skills innovation and IP – at £250bn– was on a par with the US. He cited the UK’s performance in the Nobel prize league, and promised more funding into medical research.

Moving from blue sky issues, to financial nitty gritty, he said corporation tax will be cut by 2p to 28p. At the same time, he promised to cut red tape for the self-employed and small businesses.

Taper relief on capital gains will be dumped, and will instead be replaced by a flat 18 per cent tax rate on capital gains.

Acknowleding the clamour over private equity, hedge funds and other financial public enemies, he said a new code of conduct for the private equity industry will appear next month.

In the meantime, Darling said he would plug loopholes which have helped inflate private equity pay packets. Rich non-domiciles will also find their loopholes plugged, with Darling promising more “consulting” on how to do this. However, he rubbished recent Tory proposals to bring in a flat charge for non-domiciles, saying this would lead to a shortfall of over £2bn.

After moving around the red tape, he also made a few green announcements, including levying duty on airline flights, rather than individual passengers, and bringing the airline industry into the European carbon trading scheme.

Towards the end of the speech he laid into recent Tory proposals to raise inheritance tax thresholds to £1m, opting instead for an early doubling of the threshold to £600,000 for couples, with the threshold raising again to £700,000 in 2010.®

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