Major clears path for Budget tax cuts

DONALD MACINTYRE

Political Editor

A decisive shift away from public funding of the pounds 1.8bn roads programme was confirmed by John Major last night in a clear pre-Budget warning that further shrinking of the state was needed to make way for tax cuts.

The Prime Minister used his speech to the Lord Mayor's Banquet last night to reassert his commitment - eight days before the Budget - not only to lower taxes but to bringing public spending's share of national income to below 40 per cent. It is currently 42 per cent.

He identified a first tranche of pounds 400m in private funding for four road schemes as a key example of contracts worth more than pounds 5bn signed under the Treasury's Private Finance Initiative (PFI) - which he said "will play an increasing part in capital investment in the future".

Spending ministers have been warned by William Waldegrave, the Chief Secretary to the Treasury, that throughout the current spending round that they face deep cuts in capital programmes unless they can secure private funding. The roads programme is widely reported through Whitehall to have taken one of the severest cuts.

Echoing more strongly worded calls for lower public spending by Mr Waldegrave and Chris Patten, the former party chairman, Mr Major said that while the United Kingdom's public spending's share of national income was 10 per cent below the European average, "we cannot afford to compare ourselves with our European neighbours alone". He added: "Both America and Japan spend less and tax less than we do."

Mr Major told his City audience that "when the private sector takes responsibility and bears the risk, it is more efficient than the public sector". He went on to announce Roadlink's winning bid to build and operate the upgraded A69 between Newcastle and Carlisle. The other three in the first pounds 400m programme are the A1(M) from Alconbury to Peterborough, the A1/M1 link in Yorkshire and the A419/417 Swindon to Gloucester route.

Stephen Dorrell, the Secretary of State for Health, will today outline his plans for the first four of twenty-five PFI projects worth up to pounds 25m, but will stress that private funding will apply to capital programmes only and not to clinical provision by doctors and nurses.

The Prime Minister last night repeated earlier warnings that economic monetary union (EMU) would divide the European Union between those "countries which adopted the single currency and those which did not". He added that while "in some areas of policy" such variable geometry "may be sensible, indeed, inevitable" it had to be "thought through".

He said the implications included how a single currency would co-exist with present ones; how EU institutions would serve those outside as well as those inside EMU; and what it would mean for the community budget and the single market.

The Prime Minister conspicuously did not - as some right-wing Tories both inside and outside the Government would like him to do - rule out membership of EMU during the lifetime of the next parliament. Instead, his emphasis on the importance of the issues EMU would raise for countries outside as well as inside it chimed closely with his warning last week that he was not going to "surrender influence" on such issues by ruling out monetary union. He repeated that some were "passionate about EMU; "others have profound doubts. Britain, I am glad to say, has a choice. We can decide whether to stay out or opt in".