Most British troops could be withdrawn from Iraq by the end of next year under an exit strategy outlined by Gordon Brown yesterday.

As the Prime Minister began trying to restore his battered authority after calling off an autumn election, Mr Brown said British troop numbers would be halved to 2,500 by next spring when a further decision on the next phase would be taken.

Ministry of Defence officials said that all British troops could be out by the end of next year, although Downing Street expressed caution about the prospect.

However, Mr Brown’s announcement was marred by a political row over the total number of troops that will be left in the region this Christmas. Last week during his visit to Iraq Mr Brown said 1,000 troops would leave by Christmas. It then became clear that the departure of 500 of them had already been announced. Yesterday it emerged that while a further 500 will leave Iraq by Christmas another 500 support and logistical staff will be sent out to Kuwait at the same time, leaving the total number in the region at 5,000.

Iraq timeline: five years of conflict

From accusations that the weapons of mass destruction dossier had been sexed-up to withdrawal of British troops from Basra

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Today Mr Brown’s fightback will continue with the publication of the Pre-Budget Report and three- year spending review. Alistair Darling, the Chancellor, is likely to hint that the Government will look at the future of inheritance tax and could set up an independent review of whether the scheme could be financed by the Conservative plan to charge non-domiciles.

Mr Darling is expected to outline proposals for overhauling controversial tax breaks exploited by the booming private equity industry, where some bosses on multi-million pound incomes can have tax bills “less than [their] cleaners”.

The Chancellor is also expected to move to close off other tax loopholes, including one used by small family businesses to spread profits among relatives to cut tax bills.

The recent economic turmoil seems to have damaged Mr Brown’s reputation for economic competence. A new Populus poll for The Times, taken over the weekend, shows that the number trusting Mr Brown and Mr Darling rather than David Cameron and George Osborne to handle any economic problems in the months or years ahead has fallen from 56 to 43 per cent since mid-September.

The poll puts Labour on 40 per cent, up one point since the previous poll carried out between Tuesday and Thursday, with the Conservatives two points up at 38 per cent. Liberal Democrat support has fallen by three points to 12 per cent, a new low in a Populus poll. This would give Labour virtually the same majority as now, with the Tories making big gains from the Lib Dems.

Mr Brown said that provincial Iraqi control would be established in Basra in the next two months. Troop numbers would then be reduced from the 5,500 in the summer to 4,500 in December. Early in the new year the figure would be 4,000. In the second stage of “overwatch”, where the coalition’s main focus would be on training and mentoring, the troop number would come down to 2,500 “with a further decision about the the next phase made then”.

The latter statement was assumed to mean that in the next phase it was possible that the final drawdown could begin. “Certainly at this stage there is no guarantee that they are going to be there beyond the end of 2008. The policy will be made in the spring,” one MoD official said.

Mr Brown spoke to the Commons after an uncomfortable press conference where he tried to convince reporters that he had not been influenced by the polls in calling off an election. He said he had finally followed his “first instinct” in scrapping poll plans — but conceded that he may have delayed too long in announcing his decision.

David Cameron accused the Prime Minister of “clinging to office” and added: “He must think we are all stupid.” He said the only reason Mr Brown had called off an early poll was because he feared that he might lose.

Mr Brown told reporters: “Yes, I did consider holding an election. Yes, I looked at it. My first instinct was that I wanted to get on with my job of putting my vision of what the future of the country was to the people of the country and deliver on it before there was ever an election.”

“But I did listen to people. I heard from candidates in marginal seats — those candidates were telling us we would win the election. I happen to believe we would win at any time.”

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