The Chancellor is alarmed that ministers want to use the estimated pounds 10bn "war chest" at his disposal to revise upwards the Government's spending plans. Although a three-year programme was agreed last year, the battle lines are now drawn for a tough new round of negotiations, which will begin shortly.
Some departmental ministers want to increase the pounds 362bn figure for total government spending already fixed for 2001-2002, the year in which the next general election is expected to take place. This will be the first year covered by the new three-year plan, to be agreed by next summer.
The ministers believe that a pre-election spending rise would allay growing fears among the voters, revealed by Labour's private opinion polling, that the Government is not fulfilling its pledges to improve health, education and transport. The cabinet ministers responsible for these areas - Frank Dobson, David Blunkett and John Prescott respectively - also oppose plans by Tony Blair and Mr Brown to give away part of the surplus in tax cuts. Spending ministers argue that the economic picture is much more rosy than when the existing three-year plan was fixed last year, mainly because of higher-than-expected tax receipts. But Mr Brown is worried by estimates in the City, which put his "war chest" at between pounds 10bn and pounds 30bn."Crazy figures are just being plucked out of the air," said one aide.
Yesterday the Chancellor slapped down cabinet ministers who want a pre- election spending hike, and ruled out a renegotiation of the budget total agreed for 2001-2002. "I am not going to spend money that we have not yet earned. We have set down spending plans that we are going to honour, not just for this year but for the net two years," he told BBC Radio 4.
Mr Brown reinforced his tough message last night in a keynote speech in New York, in which he said Britain was on course for a "virtuous circle" of high and stable growth with low inflation. "We will not make the mistake of past governments, which relaxed the moment the economy started to grow," he said. "We will not make the mistake of our predecessors of being incautious about the state of public finances and irresponsible in promises about public spending and taxation." But Mr Brown's pledge to maintain "a tough grip" on spending was undermined by the release of official figures yesterday, which showed that the public finances were in a robust shape.
The Public Sector Net Cash requirement - which shows how much the Government has to borrow - came in at just pounds 200m last month, compared with a forecast pounds 1.6bn. This was the lowest August figure since 1988. Public finances are on track to record a second consecutive full-year surplus.
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