The Chancellor's clampdown, which will last until the next general election, was revealed in a letter - leaked to The Independent - sent to all cabinet ministers yesterday by Alan Milburn, the Chief Secretary to the Treasury.
As a first step, Mr Milburn has demanded to see advance copies of the speeches to be made by cabinet ministers at next week's Labour Party conference in Bournemouth. He said Tony Blair had asked him to "clear" their speeches "to avoid the party making any uncosted spending commitments".
Mr Milburn warned that letting rip on spending would put the economy at risk. His letter said: "We will not make the mistake of past governments which relaxed the moment the economy started to grow. We are not going to lurch into the same irresponsible spending or tax commitments made by previous governments."
The freeze will infuriate ministers such as John Prescott, David Blunkett and Frank Dobson, who believe that the buoyant public finances should allow Labour to boost their respective budgets for public transport, education and health.
Trade unions and constituency activists will oppose further tax cuts at the Labour conference, saying the extra cash from higher-than-expected tax revenues should be pumped into public services and helping the poor. John Edmonds, general secretary of the GMB general union, will launch a strong attack on the Government's record on welfare. He will accuse Alistair Darling, the Secretary of State for Social Security, of breaking his promise to review Labour's welfare reforms. Mr Darling's pledge this spring headed off a potentially damaging grassroots revolt inside the party, but his critics claim he has since announced further changes.
Last night, Mr Edmonds warned that the Government's policies on pensions, the disabled and single mothers could alienate many Labour voters. The day after Mr Darling promised an all-out attack on poverty, Mr Edmonds said: "Before stampeding off on a crusade - moral or otherwise - it might be worth sitting down and making a cool, sober assessment of the needs of social-security provision as we approach the new millennium."
During a debate on welfare in Bournemouth, ministers will face demands to use the "war chest" to increase the basic state pension in line with average earnings instead of prices, which rise more slowly. The leaked letter reveals the Treasury's growing fears that ministers will loosen their grip on spending by their departments because of the rosy economic picture. The Treasury's view is that there is no "war chest" because it is too early to predict the scale of any surplus.
Mr Milburn told ministers in yesterday's letter: "In the weeks and months following conference, we will need to reinforce our discipline on public spending." He said the irresponsible promises by the Tories to cut taxes and by the Liberal Democrats to boost spending "would put at risk our prudence today and in the long term". He added: "Just as we did so successfully before the last general election, it will be important that none of us make any uncosted spending commitments before the next general election."
Government insiders said Mr Blair shared Mr Brown's determination to head off cabinet demands for higher spending. "We have worked hard for our reputation on the economy and we are not going to throw it away," one said.Reuse content