Lamont looks to trim spending

NORMAN LAMONT, the Chancellor, will ask ministers to consider an overall cut in the pounds 254bn spending plans for 1994-95 as his first shot in the new public expenditure round.

The aim is to make spending ministers pay for the unexpected benefits of low inflation in the coming financial year, which is likely to hand them greater-than-expected spending increases in real terms. If implemented, the decision could produce a much tighter fiscal stance in 1994-95 than expected, as the Chancellor has already announced pounds 6.7bn of tax increases.

Mr Lamont, who has begun planning for the unified Budget in November, has already focused on the greater-than-expected real increase in public spending in the financial year starting next month.

The Budget changed the inflation assumptions affecting the spending ceiling from that set in last year's Autumn Statement to show inflation would be lower than expected in the coming financial year but higher than predicted in 1994-95.

Spending in 1993-94 is thus set to rise by a real 2.8 per cent rather than the originally envisaged 2.3 per cent. In 1994-95, real spending is projected to contract by 0.2per cent instead of rising by 0.7per cent as originally envisaged.

The Chancellor's decision to try to claw back some of the higher-than-expected spending in the coming financial year is seen as a tall, but not impossible, order.

In pressing for further action, Mr Lamont may decide to use the long-term, root-and- branch review of public spending now underway by Michael Portillo, Chief Secretary to the Treasury. Treasury officials say the initial conclusions of this review will be ready for the November Budget.

The Treasury last July introduced a 'top down' approach to public spending, in which 'new control totals' were established as firm ceilings for expenditure, excluding debt interest and spending relatedto the recession, such as unemployment benefit.

Soon after the 16 March Budget, Mr Portillo went out of his way to emphasise that ministers should not necessarily assume that total spending would reach these ceilings.