Cabinet supports tight Budget for tax cuts

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The Chancellor yesterday reinforced his determination to tighten the reins on public expenditure to make way for tax cuts in the Budget.

Kenneth Clarke won the approval of the Cabinet for the strategy of cuts in public expenditure endorsed on 22 June, when John Major announced his decision to force a leadership election.

Whitehall sources said the Chancellor clearly felt it was necessary to remind Cabinet colleagues in the new team that the spending round was going to be "very tough" and to seek their co-operation in slashing spending programmes.

The Chancellor told the Cabinet that at its first meeting on Monday, the EDX Cabinet committee on spending, which he chairs, had been faced with excessive bids for spending above the ceiling of pounds 263.5bn agreed in June. Growth in the economy and higher tax receipts could ease the problem, but ministers were told capital schemes are likely to be shelved unless they are supported by private finance. That is likely to mean postponing schemes for roads, housing and hospitals.

Treasury sources pointed out that the spending round would be tighter this year because the control total for spending was being held at the level planned 12 months ago, in spite of higher than expected inflation.

The Chancellor is likely to dismiss the demands by the right-wing 92 Group for pounds 10bn to be cut from budgets, including a Thatcherite "hate list" of overseas aid, arts funding and improvements in prisons. Ministers were put on notice to expect tough bargaining. The Cabinet reaffirmed its strategy of keeping within planned limits.

John Gummer, the Secretary of State for the Environment, has been told to slash a bid for more money for housing associations and it could mean further cuts in the road building programme.

William Waldegrave, the new Chief Secretary to the Treasury, is keen to show his readiness to cut spending, in spite of his Tory left-wing credentials. "It was a useful opportunity to make it clear that if we are going to have room for tax cuts we will have to cut out the wish list of wonderful spending ideas," said one Whitehall source.

A Cabinet statement pledged a "rigorous scrutiny" of all public spending programmes, making the maximum use of private finance and cutting bureaucracy where possible. "The objective remains to keep public spending within the tightest possible limits and certainly within existing cash plans."