The Rail Dispute: Pay-bill freeze before Cabinet is stumbling block in railways clash: Track operator concedes RMT workers obeyed one-day strike call, but still manages to run 1,000 trains

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The Independent Online
THE CABINET is expected to agree today to a public statement promising to fix public spending within a tough total of pounds 263bn, which may help to mute radical ministerial calls for tax cuts - for now, writes Donald Macintyre.

The commitment will confirm not only the reduced planning total for 1995-96 but also the declaration in the Treasury's official 'Red Book' for containing the running costs of central government departments - including pay - within the 1993-94 level of pounds 20.1bn.

Although the ceiling - effectively a pay-bill freeze - technically applies only to central government departments, its application to what remains of the trading public sector is at the heart of the Government's confrontation with rail signal workers.

Implicit in the presentation by Kenneth Clarke, the Chancellor, to his Cabinet colleagues today will be the message that any hope of serious tax cuts in advance of the general election will depend on continuing tough controls on public expenditure.

But while meeting even the current planning total will mean a series of public spending battles within Whitehall, some ministers are already arguing in private that, like last year, the Chancellor should go all out to deliver an even lower spending total to allow him to start cutting tax as early as the Budget this November.

Although that view is shared within sections of the Cabinet, it is unlikely to surface openly at today's meeting. But that does not mean the issue has gone away.

A number of ministers hope that a combination of higher-than-expected growth, a consequent faster-than-anticipated growth in borrowing, and deeper cuts in spending would be enough to persuade the Chancellor to reverse the second-stage increase in VAT on fuel to 17.5 per cent. But they are likely to bide their time before making such a case.

Another factor inhibiting anything but a relatively low-key discussion at today's meeting is the impending Cabinet reshuffle. Ministers are less likely to strike postures about their own spending programmes if they do not know which, if any, department they will be running in a month's time.

There were signs last night that while David Hunt, the Secretary of State for Employment, remains the favourite for the party chairmanship, John Major is still being pressed by some to offer the job to a reluctant Michael Heseltine, President of the Board of Trade.

Another scenario being canvassed among some senior Tories is that Mr Hunt could retain his departmental portfolio while taking on the chairmanship. Such a combination is rare, however.

Meanwhile, William Waldegrave, the Chancellor of the Duchy of Lancaster, who faces possible criticism in the Scott report, was being increasingly tipped for a move - possibly to Agriculture - rather than dismissal.