BBC NEWS | 2009/12/11 | 08:43:31 GMT
The Treasury wanted tougher action in the pre-Budget report to tackle the UK deficit but was persuaded otherwise by Gordon Brown, the BBC has learned. Treasury officials wanted to announce more spending cuts in order to lend credibility to their plan to halve the £178bn deficit within four years. However, months before an election, the prime minister wanted existing pledges to boost spending by £30bn maintained. The Tories have said the plans were “designed for electioneering purposes.” The government is compelled to halve the post-war record deficit within four years, under the Fiscal Responsibility Bill. Wednesday’s pre-Budget report (PBR) announced belt-tightening measures including a public sector pay cap and a rise in National Insurance, but both of these come in from 2011.
Mr. Darling is broadly sticking to existing plans for next year, with public spending set to increase by £31bn. This disagreement between the Treasury and No 10 was not about the speed at which the budget deficit should be reduced, the BBC understands, but about how to ensure the government appeared to have a convincing plan to cut the deficit. BBC political editor Nick Robinson said: “The Treasury wanted a tougher package, mindful as it was of the need to start restoring the finances – and to be seen to be doing so. But, with an election just months away, Ed Balls, the schools secretary, and Gordon Brown, his close ally, argued passionately for an increase in the schools budget – a concession some in the Treasury regret. That has had an effect in the real world, with uncertainty over the government’s plans persuading investors to shy away from gilts – the bonds which the government sell to raise money.” The Treasury has denied a report in the Guardian newspaper suggesting that No 10 blocked a plan to impose a VAT rise above 17.5%, saying that was never an option.
Experts have warned that not all the cuts needed to reduce the deficit have been outlined by the chancellor. The Institute for Fiscal Studies (IFS) says public spending is facing a £36bn squeeze from 2011 – with £15bn of the cuts needed yet to be identified. With health and education protected, the axe could fall on defence, housing, transport and higher education. The think tank predicted “severe cuts” of the kind not seen in Britain since the late 1970s. But Justice Secretary Jack Straw said the IFS had not taken into account savings already made by the government. He told BBC News: “We’ve already spent £4bn less on unemployment benefits and income support for the unemployed than was anticipated.” The government hoped to make further savings by “moderating the rate of increase of unemployment,” he added.
Philip Hammond, for the Conservatives, said the IFS report “underlines the fact that the PBR… was a political statement designed for electioneering purposes rather than to address the real needs of the country.” The IFS estimates the cost to families of paying back the national debt is £2,400 a year for eight years. It also warns that debt levels could remain high “for a generation” – at about 60% of national output – without policies to tackle the impact of the ageing population on the UK’s public finances. Lib Dem Treasury spokesman Vince Cable, who argues that no areas of public spending should be off limits when it comes to cuts, called for a “proper debate” on where the axe should fall. “Because they are not discussing priorities openly a great deal of damage is being done,” he told BBC News.
TUC General Secretary Brendan Barber called for “radical new thinking” to avoid cuts to services and warned of possible industrial action over the “unfair” public sector pay freeze. He said there should be a “fairer contribution from the wealthiest” to help pay off Britain’s debts. But BBC economics editor Stephanie Flanders said the IFS analysis suggested the tax rises in the pre-Budget report would “overwhelmingly” impact on the top 10% of earners. “Their income, if nothing else changes, will be cut by 5% by 2012,” she added.