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Gordon Brown laid down his battle lines with David Cameron yesterday by announcing a £36 billion outlay to rebuild schools, and portraying himself as the leader who would rather spend without shame on the public services than cut taxes.

The Chancellor implied repeatedly that his four-year plan to refurbish all 21,000 primary and secondary schools, and bring immediate rises in the amount head teachers can spend as they see fit, would not be possible under Mr Cameron’s proposal to share the proceeds of growth between spending and tax cuts. The new payments amount to £200 per pupil.

Mr Brown appeared to be gambling that the public will maintain their apparent scepticism over politicians promising tax cuts, although he was equally keen not to present himself as a big raiser of taxes.

But he did announce a 1.25p a litre inflation rise in petrol duty, and doubled air passenger duty from £5 to £10 on most short-haul flights and up to £80 for long-haul flights, a measure that will bring in £1 billion next year. With some tax avoidance measures aimed at business Mr Brown will raise an extra £2 billion a year in taxes over the next three years.

The package was noticeably cautious on green taxes. There were no moves against “gas guzzlers” and senior ministers were saying that the Chancellor had done what he saw as the bare minimum in returning the air levy to what it was five years ago. He did promise to lift stamp duty temporarily on homes that met the toughest zero-carbon standards, saying that within ten years every new home would be carbon-free.

George Osborne, the Shadow Chancellor, accused him of being “obsessed about securing his next job” and of announcing three times his plan to increase education capital spending. The Tories also accused him of quietly preparing the ground for a spending spree before the next election, by which time he is expected to be prime minister. It has even been speculated that tax cuts may be an election sweetener.

However, the £36 billion rise in spending on schools does not mean that the overall public spending cake will be larger, and it is clear that Mr Brown will be relying on other departments to help to raise the cash, either from cuts in their own plans or from a multibillion-pound sell-off of surplus government land and buildings.

Mr Brown said that growth this year was now expected to hit 2.75 per cent, compared with the 2-2.5 per cent he was forecasting at the time of the last Budget. He predicted continued growth next year of 2.75 to 3.25 per cent, although slightly downgraded the prediction for 2008.

Economists continued to sound warnings that Mr Brown’s figures looked too rosy, with the average City forecast for 2007 growth standing at only 2.4 per cent.

Despite growth fulfilling his forecasts for this year, Mr Brown was forced again to admit that the Government’s finances would slide deeper into the red than he intended — the sixth year in a row that he has had to raise his borrowing forecasts. Government borrowing is now set to be £37 billion in the present financial year, 2006-07, £1 billion more than Mr Brown thought in March.

The increase was largely thanks to an overshoot in spending driven by costlier benefits and public sector pensions, because of higher inflation. Over this and the next four financial years, Mr Brown added an extra £7 billion to planned borrowing levels.

Mr Brown said he would meet his golden rule of only borrowing to invest over the economic cycle, but officials disclosed later that the current cycle would end a year earlier than expected. The Tories said this would loosen the shackles on spending in 2008-09 in the run-up to the next election.

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