In what is widely expected to be his last pre-Budget report, Chancellor Gordon Brown announced increases in transport taxes and investment in skills training.
Mr Brown, clear favourite to succeed Tony Blair next year, set out his green credentials by raising tax on fuel duty by 1.25p and doubling air passenger duty from £5 to £10, effective from midnight tonight.
He also announced that an additional £600m is to be spent on the wars in Iraq and Afghanistan and an extra £84m for counter-terrorism operations in the UK.
Nearly a third of a million homes will get free insulation and central heating and child benefit will be paid to pregnant women from 29 weeks.
The Chancellor also predicted that the UK economy will grow by 2.75% next year.
The bulk of Gordon Brown’s report to MPs focused on education and skills training.
There will be an expansion in the number of apprenticeships for young people, and former CBI boss Sir Digby Jones is to become a skills ‘envoy’.
Spending on schools equipment and infrastructure will rise by £10bn by 2010, matching the level of investment in public schools.
There is also increased funding for basic skills training for adults and an expansion of a scheme that gives children free books when they leave primary school.
Mr Brown floated the idea of giving looked-after children – children in care – a £2000 bursary if they gain admission to university.
The pre-Budget report is one of two economic forecasts the Chancellor of the Exchequer is required to give to Parliament.
He or she uses this announcement to give indications of the government’s tax and expenditure policies ahead of the Budget itself, which is presented to Parliament in the spring.
Conservative Shadow Chancellor George Osborne mocked Mr Brown’s prime ministerial ambitions and said that Labour had failed over hospitals, schools and pensions.
“The truth is this – Labour can only be new once and if the public want change they’re going to have to vote for change,” he told the House of Commons.
Lib Dem spokesman Vince Cable likened Mr Brown to a schoolboy who always gets 10 out of 10 because he marks his own work.
He questioned the rising cost of the 2012 Olympics and the proposed ID card, and said the Chancellor was “fiddling around the edges” of the environmental problems the planet faces.