Chancellor puts new curbs on spending: Robert Chote reports how ministers will in future have to fight for slices of a predetermined cake

THE CHANCELLOR, Norman Lamont yesterday announced a new 'top-down' approach to controlling public spending which will dramatically strengthen the Treasury's hand in its annual battle with departmental ministers.

The new approach will set a cast-iron cash target for around 85 per cent of public spending three years in advance. If a department's spending has to rise - say because more people have claimed legal aid - then cuts will have to be found elsewhere to keep the target intact. This will make for a much more adversarial spending round between ministers.

The target - the New Control Total (NCT) - excludes unemployment benefit and income support for people of working age from the existing planning totals set each year in the Autumn Statement. Expenditure on these areas is almost impossible to control because it varies with the level of unemployment, and thus the state of the economy. But the NCT does include several categories of spending which are closely related to the state of the economy, such as housing benefit.

The New Control Total (NCT) probably accounts for around pounds 240bn of the pounds 244.5bn which the Government has set for its expenditure planning total in 1993-94. The Chancellor said the NCT target would be increased by 3 per cent in 1994-95 and 3.25 per cent in 1995- 96. In real terms the rises will be 0.75 and 1 per cent.

The Treasury has thus implicitly revealed that it forecasts inflation of 2.25 per cent a year in 1994-95 and 1995-96.

Each year from 1993 the new December Budget, which will include spending as well as tax decisions, will set the NCT three years ahead. These totals are then intended to be unchangeable until the spending actually takes place. Previously, provisional spending totals have almost always been revised upwards.

A final decision on the allocation of the NCT will be taken by the Cabinet. The preceding discussions will be co-ordinated by a cabinet committee chaired by the Chancellor and including ministers without big spending axes to grind.

Ultimately, however, the Government's strategy remains unchanged - public spending is to fall as a proportion of national output. The new framework may make that easier to achieve, but no less painful.

Commentary, page 27