Brown's squeeze on Whitehall

By Gavin Cordon

CHANCELLOR Gordon Brown drew up the battle-lines for the next General Election as he pledged to carry on pouring money into public services.

In a highly-political Budget statement, the Chancellor announced a freeze across a range of taxes and duties, while slashing thousands of administrative jobs in the Civil Service.

He told MPs yesterday the efficiency savings – coupled with the UK's strong economic performance – would allow the Government to channel extra resources into front-line services.

Mr Brown promised his comprehensive spending review in July would deliver real-terms increases for defence, transport and the Home Office.

He said education was in line for an above-inflation rise of £8.5billion over the next three years, a real-terms annual increase of 4.4%.

Mr Brown also sought to defuse the “grey power” revolt over the council tax, with an extra £100 for all over-70s to help pay their bills.

But Conservative leader Michael Howard warned the increased spending was being financed by a huge rise in borrowing to be paid for in higher taxes after the next election.

“This is a credit card Budget from the credit card Chancellor – a borrow now, tax later Budget from a borrow now, tax later Chancellor,” he said.

However, an ebullient Mr Brown told MPs that public finances were in such good shape, he could have afforded to cut taxes if he was not investing in public services.

“The choice in this Budget was whether to cut tax rates or to continue our programme of rising public investment in order to meet the priorities of delivering stability, security and economic strength,” he said.

Stamp duty, vehicle excise duty, air passenger duty, betting duties and the duties on spirits, cider and sparkling wine were all frozen, as were corporation tax, capital gains tax, the climate change levy and the aggregates levy.

Inheritance tax was also frozen, while the starting point at which it becomes payable was raised to £263,000 and the annual uprating in fuel duty was delayed for six months for the second year in succession.

There were increases for smokers and beer and wine drinkers, but only in line with inflation with 1p on a pint of beer, 4p on a bottle of wine and 8p on a packet of 20 cigarettes.

At the same time Mr Brown said he had ordered all Whitehall departments to deliver 2.5% annual efficiency savings over the next three years, channelling an extra £20bn into frontline services by 2008.

The first cuts will fall on the Department of Work and Pensions, which is to lose 30,000 staff, and the Inland Revenue and Customs and Excise, which are to be merged with the loss of 10,500 jobs.

Customs staff in Harwich, Felixstowe and Stansted Airport are unlikely to be affected, but there are likely to be implications for the major regional Customs and Inland Revenue departments in Ipswich.

The Department for Education and Skills will also see its headquarters staff slashed by almost a third – a reduction of 1,460, taking the total for the four departments to almost 42,000.

It follows the announcement earlier this week of plans to relocate 20,000 civil service jobs out of Whitehall to the regions.

Unions complained the move was simply designed to “shoot the fox” of shadow chancellor Oliver Letwin, who has said he would hope to cut taxes through efficiency savings and a public spending freeze.

Mr Brown insisted that with the cost of unemployment now £10bn a year less than it was when Labour came to power in 1997 and savings of £5bn a year through the sale of surplus assets, cuts were unnecessary.

“Such a policy... would, in fact, be an exact repeat of the mistakes of Britain's stop go past and put at risk British stability and growth,” he said.

The Chancellor boasted the country was currently enjoying its longest period of sustained economic growth since the start of the Industrial Revolution more than 200 years ago.

He added the economy remained on course to meet his forecasts in his December Pre-Budget Report of 3% to 3.5% growth this year and next, easing back to 2.5% to 3% in the following year.

His forecasts for public borrowing were however up slightly on the Pre-Budget Report, with debt expected to reach £37.5bn this year, falling back to £33bn, £31bn, £27bn, £27bn and £23bn in the subsequent years.

Despite the buoyant outlook, Mr Brown said he would not be reassessing the five economic tests for joining the euro this year, effectively ruling out a referendum before the next General Election, now probably less than 18 months away.

Liberal Democrat Treasury spokesman Vince Cable – standing in for leader Charles Kennedy, who was suffering from a “violent stomach bug” – said Mr Brown was simply putting off the “tough choices” facing the Government until after the election was out of the way.

“The Chancellor has failed to tackle a dangerously unbalanced economy. He has failed to address the trillion pound household debt bubble, which will expose large numbers of families to financial disaster if interest rates rise and house prices fall,” he added.

However, the Budget was broadly welcomed by Digby Jones, director general of the Confederation of British Industry.

“This is an innovative and meaningful package. The Chancellor has heeded company warnings about damaging rises in business tax and responded to calls for measures to invest in enterprise, education, science and transport,” he said.