Commentary: Treasury's plan smacks of panic

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The Treasury's sleight of hand over the public spending round looks like a dramatic victory over spending ministers, but it also smacks of panic.

It is probably a victory because it should in theory give the Treasury much greater control over public spending. Under the old procedure, three-year spending plans were announced each autumn. But the last two years of the plan have proved to be academic. Even the provisional spending total for the first year was routinely breached by the time the spending round took place. By the third year, the total stood far above the original sum envisaged.

The new system, dubbed the 'new control total' by the Treasury, is an attempt to reimpose discipline on spending ministers. The original totals spelt out for the three susbequent financial years will be sacrosanct. The increase in spending caused by recession or, in better days, the savings brought about through recovery, will be stripped out of the target. So far so good. But who is to say that the new control totals will not be breached? This is a theoretical model in which ministers argue over their share, not over the total.

But it is naive to suppose that if there is a crisis in, say, the NHS, the Treasury will order the Ministry of Defence to sell a warship to save a hospital. Another potential loophole is the definition of economically related spending. This is envisaged to be benefit spending, which varies with unemployment. But with higher unemployment, is there not a case for increased spending on training?

Clever and impressive though the new Treasury plan appears, it has been pushed through with considerable haste. This suggests that the Treasury is far more worried by the public sector borrowing requirement over coming years than most observers have imagined.