In his Budget 2004 speech, Gordon Brown pledged to wring an extra £20bn a year for public services with a bold plan to squeeze the Government's running costs and cut more than 40,000 Civil Service jobs.

In a Budget that was light on tax changes, the Chancellor set the limits of Labour's tightest spending review since coming to power in 1997. Mr Brown seized the initiative with an attack on bureaucracy, telling government departments to save 2.5 per cent of their budgets each year through increased efficiency.

He also attempted to deflect the charge that taxes would inevitably have to be raised in a third Labour term in power.

The most dramatic feature of the Budget was the announcement that by 2008 about 30,000 Civil Service jobs could go from a reform of the Department for Work and Pensions, and 10,500 more from the merger of the Inland Revenue and Customs & Excise.

Education was the biggest beneficiary, getting an annual average real terms increase of 4.4 per cent from 2004/05 to 2007/08.

Defence, the Home Office and Transport were all also promised 'real terms' increases. Health spending, averaging a 7.2 per cent annual real terms rise, has already been committed.

There is to be an attack on tax avoidance, with disclosure requirements for certain tax plans. Older pensioners are to get an additional £100 bonus to help ease the pain of rises in the council tax.

The Chancellor reiterated his prediction that the economy would grow by 3 to 3.5 per cent this year and next.