Gordon Brown is facing a rebellion by cabinet ministers over his flagship schemes to tackle poverty, with new figures suggesting that Britain will soon be spending more on welfare than when Labour came to office in 1997.
The small print of the Chancellor's pre-Budget report last month reveals that extra help for families, pensioners and the disabled will help to increase the level of state handouts by £32.5bn to a record £125bn a year in the 2003-04 financial year – up 36 per cent since Labour came to power.
Much of the rise is due to Mr Brown's tax credits, which are designed to ensure that young people who come off benefits and start jobs are not penalised by the tax system.
Other spending ministers believe the tax credits deliver little in the way of political dividends because the public does not understand them. They would prefer the money to go on increased public expenditure in areas such as health, education and transport when a new three-year spending blueprint is published next summer.
One cabinet source said of the tax credits: "The time has come for the searchlight to be shone on what this £6bn a year achieves. No other minister would be allowed to get away with it with such little scrutiny."
Ministers seeking big increases in their own budgets in their current negotiations with the Treasury include Alan Milburn, the Secretary of State for Health, Estelle Morris, the Secretary of State for Education, Stephen Byers, the Secretary of State for Transport, and David Blunkett, the Home Secretary.
The cabinet row comes as the Tories claimed new statistics showed that Tony Blair would break his repeated pledge to slash the "bills of social failure". They said state support was now "out of control". According to the pre-Budget report, the cost of the existing welfare system will rise from £92.2bn in 1996-07 to £115bn in 2003-04. The working families tax credit, disabled person's tax credit and pension credit will push up the cost by another £7.1bn a year. The independent Institute of Financial Studies estimates the planned employment tax credit and child tax credit will cost a further £2.8bn, producing an overall total of £125bn.
The Treasury disputes the Tories' interpretation of the figures and refuses to describe the tax credits as a form of state benefit. But the Tories insist they are benefits in all but name because they offer direct state aid and warned that the planned changes would lead to a massive extension of means testing.
David Willetts, the shadow Secretary of State for Work and Pensions, said: "An increase of 36 per cent since 1997 is scandalous from a Government that promised to reduce means testing and to tackle 'the bills of social failure'. The disincentives, the complexity and above all the expense of widespread means testing will get even worse when the Government introduces the pension credit, the employment credit and the child tax credit in 2003.''
The figures will also fuel concerns among some Downing Street aides, who believe that the funds going on tax credits would be better spent on public services that benefit bigger sections of society, including the middle classes.
Departmental ministers point out that the Treasury is expected to overspend on the working families tax credit by £300m last year, £200m in the current year and £400m next year. They claim the Chancellor is giving his pet schemes special protection. But Mr Brown was unrepentant when he addressed the Parliamentary Labour Party before the Commons Christmas recess, giving some Labour MPs the impression he would not bow to any pressure from Mr Blair to rein in his spending on tax credits.
Minutes of the meeting, passed to The Independent, reveal that the Chancellor said: "It is not a matter of sacrificing one part of our manifesto, i e alleviating poverty, for another, i e investment in public services. The tax credit agenda is making work pay and moving people from benefit into work."Reuse content