Shadow Chancellor set to attack Labour's 'borrowing spree'

As Gordon Brown prepares to deliver his latest economic report, Oliver Letwin says the public has rumbled him on tax
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Indy Politics

Oliver Letwin, the shadow Chancellor, will accuse Gordon Brown today of sitting on a ticking time bomb of tax rises that will explode after the next general election.

Mr Letwin will have the tricky task of responding immediately to the Chancellor's upbeat assessment of the British economy in his annual pre-Budget report. It will be his first big set-piece performance since he was appointed as the sixth shadow Chancellor to face Mr Brown across the dispatch box in six years when the post's previous holder, Michael Howard, became Tory leader.

As he rehearsed his lines in an interview with The Independent yesterday, Mr Letwin returned repeatedly to the theme that Mr Brown is storing up huge problems for another day. If everything in the garden is so rosy, he is expected to ask today, why does the Chancellor need to raise borrowing above the £27bn figure he forecast in his April Budget?

On tax, Mr Letwin is convinced that the public has rumbled Labour after what he called "the 60 tax rises" since 1997. Opinion polls suggest that the public's tolerance of the Government on tax has reached its limit. A YouGov survey this week found that only 16 per cent support tax increases to bridge the Government's deficit, while 56 per cent want a cut in planned spending increases.

Mr Letwin is warning that there are more tax rises in the pipeline. "The Chancellor is taxing and spending and failing. He represents the economy as very rosy, and yet he is in the midst of an enormous borrowing spree. He is deferring tax rises so that he can pour more money down the well of unreformed public services. The sums will add up for a period but after a while they won't. You can borrow for a while but then you have to do it through tax and then it will crack."

Underneath Mr Brown's "rosy scenario", Mr Letwin said, lurked some very worrying trends: the rising tax burden; "top down" and bureau- cratic public service reforms; a "culture of expansion" in Whitehall with running costs up by 50 per cent since 1997; a savings ratio which has halved, partly because means-tested benefits give people no incentive to provide for their retirement; and lower productivity growth than under the last Tory government.

"You are not going to create an immediate crisis, but if it is allowed to continue over a long period it will cause very significant problems," he said.

So what would the Tories do? The most important difference, Mr Letwin said, would be fundamental reform of public services to give taxpayers "more bang for their bucks" and consumers more choice by introducing "passports" for patients and pupils. He conceded that Tony Blair had tried at times to bring in radical change but argued that he had been thwarted by Mr Brown, the Labour Party and the trade unions.

"So long as Labour refuses to countenance serious reform of the public services, their only response to the problems in those services will be to increase taxes - and when that fails, to increase taxes again. Real reform is the only way to break the cycle of ever-higher taxes that fail to deliver the higher standards everyone wants to see."

Mr Letwin said: "We recognise that we can't look to those fundamental reforms for short-term savings. It would not be plausible to pretend otherwise. But we do believe that the Government's costs of running itself are way out of kilter - they are almost out of control. It is implausible that it costs 50 per cent - almost £7 bn - more to run the Government today than it did a few years ago."

Promising to cut waste is the oldest trick in the politician's book, and Mr Brown has set up three independent reviews in the hope of shooting the Tories' fox, but Mr Letwin insisted that the Chancellor's war on waste will fail, pointing to his record since 1997.

The Tories will set out their tax and spending plans well before the next general election, Mr Letwin promised. In the short term, he said, they would come up with some answers to the problems caused by soaring council tax bills, which rose by an unprecedented average of 13 per cent this year. The Tories may propose that the share of council budgets raised locally is increased from 25 per cent to more than 50 per cent and the council tax is likely to remain under their plans.

With another big increase on the cards in April, the shadow Chancellor urged everyone to "rise up" against the council tax. It sounded as if he was urging people to join the non-payment campaign threatened by pensioners in the South-west.

"Certainly not," he insisted. "People should obey the law. I believe that passionately. I just want people to make it abundantly clear to Gordon Brown and John Prescott that they can't go on forcing councils all over the country to raise their council taxes by manipulating the grants regime."

Reflecting the new mood of Conservative optimism since Mr Howard's appointment as leader, Mr Letwin said: "We are not saying it is going to be easy. We are still in the foothills and there is a long ascent ahead. But we are taking very seriously now the proposition that we might actually be in government."