Brown unveils spending revolution in Whitehall

THE CHANCELLOR, Gordon Brown, will announce a radical reform of the Government's spending framework today, abandoning the traditional departmental system. The Chancellor will say that in the next three-year plans, expenditure will be set according to policy aims rather than by department.

Areas such as care of the under-fives, criminal justice, services for young people, older workers, science and research and aid policy will be highlighted in the new plans, due to be negotiated next year for the years 2001-02 to 2003-04.

Mr Brown will again emphasise the importance of keeping a tight grip on spending, backed by a new report from the International Monetary Fund. The IMF, whose team of experts has just left the UK after its annual week- long assessment, heaps praise on his tough economic policies.

Andrew Smith, Chief Secretary to the Treasury, said he would examine how the extra pounds 40bn provided by the last comprehensive spending review had contributed to improvements in services. "The condition for funding will be modernisation and reform of our public services," he said.

The new framework, tested on a far smaller scale in the last spending round, is being made possible by the reform of accounting methods in the public sector. This will introduce private- sector standards and make it easier to track expenditure on particular programmes.

Negotiations for next year will fix spending totals for the following three years, but the two rounds overlap so that the first year of the next three-year cycle is the same as the last year of the earlier one. This will rule out any possibility of increases in expenditure between reviews.

The IMF's report, published this morning, says the improvement in the British economy is due to the better framework for monetary and fiscal policy. "The performance of the UK economy in recent years has been remarkable," it says.

However, it warns against repeating the mistake of "extreme optimism" about the public finances. "There is no case for relaxing fiscal policies," the report continues, saying that the improvement in Government finances in recent months is almost entirely "transient" because of the unexpected strength of the economy.

Mr Smith said: "We have always said we will not make the mistake of the 1980s, relaxing fiscal discipline the moment the economy started to grow. The same tough grip will continue."

The IMF notes that this message has not got through to the public, and recommends that the Treasury publish quarterly reports setting out trends in public spending and tax revenues and explaining key developments. In a veiled reference to the battle of statistics over the burden of taxation, it also recommends the use of a standard and consistent set of tables in each report.

The IMF's unusually positive review coincided with new figures yesterday showing the biggest quarterly jump in export volumes for 20 years. The economy grew strongly in the third quarter, official statistics show, with manufacturing outpacing services for the first time in five years.

The figures counter the view that a struggling industrial sector has been held back by the strong pound, pointing to more balanced and sustainable growth than earlier in the year.

Exports surge, Business, Page 22