Schools spending win is end for new roads

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The Independent Online

Chief Political Correspondent

Gillian Shephard yesterday came out on top in a bruising spending battle with Kenneth Clarke, the Chancellor, over her demand for pounds 800m extra for education, but it will lead to deep cuts in spending on defence, roads, overseas aid, social security and housing.

The Prime Minister gave the Secretary of State for Education and Employment his backing to settle her budget demand for next year, as the Cabinet met to agree cuts in spending to clear the way for up to pounds 3-5bn in tax cuts. It will meet again next Monday to complete the task.

Ministers agreed the report of the Cabinet EDX spending committee, chaired by the Chancellor, setting out the strategy for reducing public expenditure by more than pounds 3bn below the pounds 263bn total previously set for next year.

Michael Heseltine, the Deputy Prime Minister, was said to have played a crucial role in forcing cuts in running costs, amounting to a swingeing 5 per cent across the board in Whitehall. Stephen Dorrell, the Secretary of State for Health, also won an increase in his budget to fulfil a commitment for a real-terms increase in the NHS each year.

It is expected that the Chancellor will announce that the public expenditure total has been cut by pounds 2-3bn and senior Tories - led by the former Chancellor, Norman Lamont - said he could raid pounds 3bn from the contingency reserve for tax cuts.

The victory for Mrs Shephard will be paid for in other budgets. Overseas aid is to be slashed.

At the Ministry of Defence, Michael Portillo is being forced to accept deeper cuts, causing fresh rumblings of discontent from Tory backbench MPs.

Virginia Bottomley is fighting off Treasury demands for a pounds 60m cut in the pounds 1bn National Heritage budget, warning Cabinet colleagues that it would be seen as an attempt channel National Lottery funds into vote-winning tax cuts.

Peter Lilley, Secretary of State for Social Security, is close to settling cuts in his spending through a freeze on some benefits not covered by the statutory up-rating in line with inflation.

Sir George Young, the Secretary of State for Transport, has been forced to shelve much of his road programme, although key schemes such as the Newbury by-pass may be reprieved.