'Fuel in the tank' or running on empty? Budget claims unravel

Andrew Grice and Sean O'Grady find cracks emerging in the Chancellor's plans
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Indy Politics

David Cameron was accused yesterday of breaching his flagship promise to raise spending on the National Health Service as critics seized on the small print of Wednesday's Budget.

George Osborne, the Chancellor, was forced on to the defensive over several measures in his package as Labour claimed it was unravelling. Although he won some favourable headlines by announcing plans to halt spiralling fuel prices, he suffered a bout of "Day 2 Budget blues" yesterday as analysts, pressure groups and the Opposition pored over his Budget documents.

NHS budget: Healthcare inflation puts election pledge at risk

Mr Cameron defused health as an issue at last year's general election by promising to raise England's NHS budget in real terms each year. The Tories ran a poster campaign in which Mr Cameron said: "I'll cut the deficit – not the NHS." Higher than expected inflation has now put that pledge at risk, Labour claimed yesterday. The Opposition cited a House of Commons Library analysis showing that NHS spending is falling by around 1 per cent in real terms over the next four years, including a drop in both 2011-12 and 2012-13. To keep his promise, Mr Cameron would need to increase NHS spending by at least £1bn.

John Healey, the shadow Health Secretary, said: "The small print of the Budget confirms David Cameron is letting the NHS down, and has broken his promise to protect the NHS. David Cameron is more concerned with his ideologically driven NHS reorganisation than keeping his promises on the health service."

But Andrew Lansley, the Health Secretary, accused Labour of spreading "scare stories". Ministers hinted they would find more money for the NHS if need be – a move that would tighten the screw on other Whitehall departments.

The Treasury cited yesterday's post-Budget analysis by the Institute for Fiscal Studies (IFS), which said the pledge to raise spending each year would still be met. But it said: "In terms of the Government's pledge to grow NHS spending in real terms year-on-year, this will now be only barely true between 2010-11 and 2011-12. If 2010-11 spending had not turned out less than planned, there would have been a small real cut in 2011-12. The Government is sailing perilously close to the wind with respect to honouring this particular pledge."

Winter fuel payments: Pensioners may face £100 cut

Mr Osborne came under fire for not spelling out in Wednesday's speech that pensioners would receive up to £100 less in winter fuel payments. These are currently worth £250 for the over-60s and £400 for the over-80s, after the previous Labour Government gave them a temporary boost of £50 and £100 respectively. This top-up will expire next winter.

Michelle Mitchell, director of the charity Age UK, said: "We appreciate that the core winter fuel payment has been retained, but with energy prices continuing to escalate, many older people will be very disappointed that the additional payments given since 2008 will not be renewed."

A Treasury spokesman insisted that the Government is not cutting anything, but simply allowing the top-up to expire. He said: "Mr Osborne [told] the House of Commons in his spending review speech last year that the winter fuel payment 'will remain exactly as budgeted for by the previous government,' which had said the temporary increase would be allowed to expire from 2011-12."

Fuel duty: 5p rise in petrol prices 'delayed, not cancelled'

Mr Cameron claimed yesterday that the Budget measures to help motorists amounted to a 6p-per-litre cut in pump prices – an immediate 1p cut in duty on Wednesday night and the cancellation of a 5p rise due next month. "It's a substantial reduction... but I think it's absolutely the right move to take," he said.

Labour pointed out that next month's rise had merely been postponed. Duty will rise in January and August next year, by about 3p on each occasion.

The Government was forced to deny warnings that oil companies could raise prices to recoup the £2bn a year windfall tax on them to fund the help for motorists. Mr Osborne said he would be watching oil firms "like a hawk" to make sure there was "no funny business".

The Tories recalled that when Gordon Brown introduced a similar levy as Chancellor, the Treasury said oil companies "will be unable to pass any costs on to consumers" because there was a competitive market and retailers would buy oil from other suppliers. Oil firms promised yesterday that the tax rise would not be passed on.

Income tax allowance: Benefits 'will be wiped out by smallprint'

Mr Osborne was accused of "giving with one hand and taking with the other" on tax and national insurance. Critics said his decision to raise the personal tax allowance to £8,015 from April next year would be offset by two other measures.

Labour had already announced a freeze in the higher-rate threshold in 2012, increasing the number of people on the 40p tax rate by 500,000. And Mr Osborne's decision to raise national insurance thresholds in line with the consumer prices index (CPI) rather than the higher retail price index (RPI) could push more people into the 40p net if their pay rises by more than the CPI.

The IFS said: "Using CPI rather than RPI will mean these thresholds will increase less quickly than they otherwise would have done." It said the change would raise £1bn a year by the end of the parliament.

A Treasury spokesman said it was "utterly ridiculous" to describe the switch to CPI as a "stealth tax" because Mr Osborne announced it in his Budget speech and the Budget documents showed that the move would bring in revenue of £1.08bn a year by 2015-16.

Disability allowance: Policy 'is in complete chaos'

In last autumn's spending review, the Government signalled it would reduce the mobility component from disability living allowance (DLA), which helps 80,000 care home residents. But ministers backed down after an outcry and Mr Cameron told MPs on Wednesday the cut would not go ahead.

However, Labour claimed yesterday that the policy was in "complete chaos" after savings from DLA were included in the Budget figures. Disability Alliance said the mixed signals were causing anxiety for the disabled.

Government sources said the Budget figures were due to a technicality. They said £75m had been found to reverse the original cut, but that other savings in DLA would be found in future years.

'Budget for growth': Doubt cast on Osborne's central claim

The Office for Budget Responsibility said it lacked the evidence to say whether the Plan for Growth, which accompanied the Budget, would lift the UK's longer-term rate of growth. It said there was very little the plan could do to improve growth in the short term but that relaxation of planning rules might help in future.

The IFS questioned whether Britain's international competitiveness would be improved by Government initiatives such as attracting tourists with smart phone apps, writing regulations for space tourism, and moving the first bank holiday in May.

On enterprise zones, the IFS said that the precedent of the 1980s was not encouraging as the extra firms and jobs created were mainly due to firms relocating from nearby areas.