Why Major's tax promises just don't add up

The state of public finances has left the Chancellor with very little room for manoeuvre to satisfy conference expectations. Paul Wallace explains

All chancellors have to speak with forked tongue, balancing messages of financial sobriety for the City and barnstorming euphoria for the voters. The dilemma is always at its most acute at conference time, when the audience being addressed is party activists.

But seldom has a chancellor faced a greater test of verbal dexterity than Kenneth Clarke will when he stands up to make his speech tomorrow in Blackpool. On the one hand, he has to boost morale with a pledge of tax cuts - or face the wrath of the party. On the other hand, he also knows he can't afford them. No wonder the speech has apparently gone through extensive drafts.

Two weeks ago, the City fired a sighting shot, warning of the barrage it could lay on a lax Budget. For the first time ever, it did not buy all the new government debt the Bank of England was trying to sell in one of its regular bond auctions to finance public borrowing.

That auction was for pounds 3bn, but the Government may have to raise 10 times that in the current financial year. This week the Ernst & Young Item Club forecasting group, which uses the Treasury model, projected a deficit of pounds 27bn, much more than the pounds 21.5bn the Treasury anticipated last November. Worse still, even without tax cuts, it forecast a deficit of pounds 25bn for next year, 1996-97, almost double the pounds 13bn the Chancellor projected in his last Budget.

The deterioration in the public finances has come for two principal reasons. One is that tax revenues have proved disappointing in the current recovery. In June, the Treasury conceded that VAT, income tax and corporation tax were coming in below the levels it had anticipated at the time of the last Budget. These lower receipts would "knock through" into next year's tax revenue.

The second reason is the slowdown in the economy. Just as higher-than- expected growth in 1994 brought down borrowing more than had been forecast, so this year's unexpected economic slowdown has forced up public borrowing. The effect is to leave the Government much further from its objective of balancing the books by the end of the Nineties. It also imperils the objective of bringing the deficit as a percentage of national output down to 3 per cent by 1997, a condition for eligibility to participate in European monetary union. Disconcerting though it may be to the predominantly Euro- sceptical delegates at the conference, the Government wants to keep its options open on EMU.

Against this background, there can be little doubt about the mood music Mr Clarke would seek to strike if his audience this week were sober-suited City bankers at the Mansion House. In between the quaffing and guzzling, there would be much solemn intoning about the need to abide by the sacred principles of sound finance. But Mr Clarke's audience is the Tory faithful, who will want a much more upbeat tune about tax cuts.

There is only one way to square the circle: spending cuts. The trouble is that this is much easier to promise than it is to deliver. Mr Clarke talks tough on spending, but in practice he has found it just as difficult to deliver real expenditure cuts as his predecessors.

In his November 1993 Budget, for example, the Chancellor said he was going to cut the "control total" - the key spending figure targeted by ministers - by 1.25 per cent in real terms. That was the plan; the reality was that by the time all the bills had come in it turned out to have risen by as much.

Even before the current drive for new spending cuts, the Treasury's plan to limit growth in the control total next year to less than 0.5 per cent was extraordinarily tight. This would be ambitious for a normal year: on average, public spending has grown by just under 2 per cent over the past 15 years. But this Budget is for a pre-election or maybe even an election year, when largesse with the public purse has historically been the order of the day. In 1992-93, for example, the control total rose by almost 5 per cent in real terms.

With so little room for manoeuvre, what we may therefore expect is a piece of vintage Treasury legerdemain. Tax cuts are coming and will be justified by notional spending cuts. The most likely rabbit Mr Clarke will pull out of the hat will be a cut in the contingency reserve - money held back for unbudgeted spending - which will then be allocated to tax cuts. Whether the magic will last is quite another matter. But then it is quite possible that it will be another chancellor who will have to pick up the bill if the spending cuts turn out to be strictly presentational rather than for real.

Have you tried new the Independent Digital Edition apps?
ebooksAn unforgettable anthology of contemporary reportage
Teeth should be brushed twice a day to prevent tooth decay
Bryan Cranston as Walter White, in the acclaimed series 'Breaking Bad'
footballChelsea 6 Maribor 0: Blues warm up for Premier League showdown with stroll in Champions League - but Mourinho is short of strikers
Those who were encouraged to walk in a happy manner remembered less negative words
Arts and Entertainment
Princess Olga in 'You Can't Get the Staff'
tvReview: The anachronistic aristocrats, it seemed, were just happy to have some attention
Renee Zellweger as Bridget Jones
Life and Style

Board creates magnetic field to achieve lift

There have been various incidents of social media users inadvertently flouting the law

Life and Style
Stack ‘em high?: quantity doesn’t always trump quality, as Friends of the Earth can testify
techThe proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
CSKA Moscow celebrate after equalising with a late penalty
footballCSKA Moscow 2 Manchester City 2: Premier League champions let two goal lead slip in Russia
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

IT Project Manager

Competitive: Clearwater People Solutions Ltd: Our client based in Chelmsford a...

Business Intelligence Specialist - work from home

£40000 per annum: Ashdown Group: An established and growing IT Consultancy fir...

Business Intelligence Specialist - work from home

£40000 per annum: Ashdown Group: An established and growing IT Consultancy fir...

IT Manager

£40000 - £45000 per annum + pension, healthcare,25 days: Ashdown Group: An est...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Lonely Planet’s Best in Travel 2015

UK city beats Vienna, Paris and New York to be ranked seventh in world’s best tourist destinations - but it's not London