Treasury sets year-end target for first spending cuts

THE TREASURY is looking for the first cuts in public spending in December from the wholesale review of the Government's public expenditure now underway.

Health, education, social security and the Home Office are to be tackled first in a rolling programme expected to take two to three years to complete.

But some of the most radical options ministers will examine in the welfare field look likely to be items for the next Parliament unless the Government is prepared to breach manifesto promises.

The review is aimed at generating short-term savings - but is also looking beyond this Parliament at where public provision can be substituted by the private sector, or where programmes can be dropped or curtailed.

Labour will today attempt to bring Michael Portillo, Chief Secretary to the Treasury, to the Commons to detail the Government's plans. Harriet Harman, his Labour opposite number, said yesterday that the Conservative right was trying 'to take advantage of the economic chaos to achieve their aspiration to get rid of the welfare state'.

That charge came after Peter Lilley, Secretary of State for Social Security, pointed at the weekend to the possibility of the basic state pension being means- tested and replaced by private provision.

'We need to look for ways in which the state pension could be better targeted and private provision harnessed,' he said at the Young Conservative's conference in Southend.

That could involve people receiving national insurance rebates in return for foregoing the state pension - as already happens with the earnings-related pension - while some on the right want the possibility of private insurance for unemployment explored.

The party manifesto, however, says the state pension will remain 'the foundation' for retirement, with its value protected. And while child benefit could be taxed, opponents would argue that that would breach the spirit of the manifesto pledge.

Stephen Dorrell, Financial Secretary to the Treasury, attempted yesterday to calm the storm the review has brought by stating that 'clearly the commitments of the Government at the election' - which include real-terms growth in health spending - 'are commitments that stand'.

There had, however, to be an in-depth review of each programme, in series, to 'ensure they reflect today's priorities', he said on BBC Radio's World at One.

Mr Dorrell's interview implied, however, that public spending was the Treasury's priority in the battle to curb the soaring public borrowing requirement - a priority ahead of tax increases in the March Budget.

Mr Dorrell appeared to point in that direction by saying that the Government's financial situation was not 'deeply bad', nor was it in 'the middle of a thunderstorm', as some commentators suggest.

He underlined that growth was the third way of reducing the budget deficit alongside tax increases and spending cuts. That reinforced expectations of a cautious, largely neutral Budget in March, with tougher action being postponed to December.

Gordon Brown, Labour's shadow Chancellor, said yesterday that John Major's 'policy vacuum and void' meant the right was trying to seize the agenda.