Spending to be held down for years

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MICHAEL PORTILLO, the Chief Secretary to the Treasury, yesterday warned Cabinet colleagues who have been forced to accept deep budget cuts that the squeeze on public spending will last for years.

Mr Portillo said on ITV's Walden programme he wanted to control public expenditure 'at broadly its present level, so over a period of time as the economy grows the proportion that is taken by the state is going to be reduced'.

He repeated his warning that the state pension could be phased out for people now in their 40s. Mr Portillo, a Thatcherite tipped to replace John Major one day, said it was 'not scary' to think about changes in state provision for pensions in the 21st century.

'The generation I am talking about is my generation and below,' said Mr Portillo, 40, the youngest member of the Cabinet. 'We are people who ought to be responsible enough to think what is going to happen in the next century . . . .'

Mr Portillo said he would not end universal provision of state education and the NHS, but he gave no guarantee about pensions. 'People are looking at the state to do too much, almost everything,' he said.

Kenneth Clarke, the Chancellor, is coming under growing pressure from ministers and Tory backbenchers to produce a 'granny bond' in the Budget to compensate Tory pensioners who have suffered because of cuts in interest rates.

Mr Portillo also hinted that local authorities could be forced into a privatisation programme. Councils could sell arable land, abattoirs, airports, and allotments 'and that is just the As,' he said.

But ministerial colleagues said last night that most such holdings 'would not add up to a lot of noughts - the idea that there is great hidden oil well that they are sitting on is just not true'.

Ministers also reacted sceptically to a memorandum calling for a return to core values issued by Mr Major's office at the weekend. 'There are no votes in nostalgia. The golden age is a myth,' said one.

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