Officials in the Treasury are already preparing plans for much sharper cuts in public spending in the event of the Conservatives coming to power, according to Whitehall sources.
Civil servants have been working for some time on exactly how the necessary spending cuts must be implemented – whoever is in power – in order to maintain Britain's triple-A credit rating, deal with its massive deficit and reinforce the country's financial reputation.
But Chancellor Alistair Darling shied away from making any such savage cuts in his pre-Budget report last week. Talk of clashes between Gordon Brown and the Chancellor over slashing spending in the PBR was dismissed by both men, despite rumours that Mr Darling was said to have been keener to spell out how he would halve the deficit over the next four years, but was over-ruled.
Sources close to the Treasury confirmed this weekend that officials have private papers in circulation setting out the scale of cuts required to reduce the £178bn deficit. These have also been given to shadow chancellor George Osborne and his team to study ahead of the election.
It is generally accepted in Whitehall that Treasury ministers will, sooner or later, need to be able to persuade overseas investors that the UK has the will and the nerve to cut the deficit.
One insider said: "It is normal for any potential incoming administration to work with government officials on preparing the 'transition' groundwork. This has been going on for some months and will be hastened over the next few weeks in preparation for the election. The Tories have said that if they win, they will move swiftly with an emergency 'austerity' budget. This is now in its early stages."
Last week the Conservatives appointed Sir Alan Budd, the highly respected former chief economist to the Treasury and former Monetary Policy Committee member, to run its new Office for Budget Responsibility, which will monitor the UK's finances. The watchdog is being set up earlier than expected so it can publish forecasts ahead of an emergency Budget, promised not more than 50 days after the election, should the Tories win.
In a parallel move, the Bank of Engand is sparking debate among policy-makers over the need for legislation with its paper, The Role of Macroprudential Policy, which discusses how authorities can prevent another asset bubble, and how new macroprudential instruments – missing in the current policy framework – could be designed to restrain a similar build-up of risks.Reuse content