Steve Richards: Trident missiles, nuclear power, Olympics - where will Gordon Brown find the money?

Tax and Spend remains the most explosive policy area in British politics
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It is in the context of these more straitened circumstances that the decision on whether or not to replace Trident with a new generation of nuclear weaponry is so politically explosive. There are the familiar and important questions about the degree to which nuclear weapons are the most appropriate form of maintaining national security. But, above all, there is the most potent question of the lot. Where is the money going to come from?

On the front page of yesterday's Independent the estimated cost of updating Britain's nuclear weapons was put at the staggeringly daunting figure of £20bn. One senior government insider told me that this was a conservative figure. Already the estimates are moving towards £30bn.

The background to the likely decision to replace Trident is illuminating for several related reasons. The previous Defence Secretary, Geoff Hoon, took a relatively consensual approach to the issue. Mr Hoon is more passionate than he seems, at least on issues relating vaguely to parliamentary democracy. He wanted a wide-ranging debate about what to do next in relation to Trident.

Three options included a modest nuclear replacement, a more ambitious but still relatively cheap alternative, or going for the most expensive of the lot. Mr Hoon was replaced before the Trident missiles. His successor, Dr John Reid, flourishes on high- octane debate, but nearly always has decided his own view before the debate takes place. Apparently, Dr Reid has decided to support the most expensive replacement in advance of any debate on the issue.

Not surprisingly, as a Chancellor, Gordon Brown preferred the approach of Mr Hoon to the delicate matter of spending up to £30bn. This is not just because Mr Hoon held out the possibility of spending less money. Mr Brown's strategic approach to controversial issues is to instigate a debate on where the country wants to be in a decade's time and then seek some form of consensus as to how to get there. Mr Brown will be reluctant to commit such a large sum of money for a replacement to Trident when there has been virtually no debate at all and before it is clear where the Ministry of Defence is willing to make savings in other areas.

Dr Reid is not alone in wishing to spend a fortune in addition to existing commitments. There are ministerial hints of massive additional spending programmes most days of the week. As well as the replacement to nuclear weapons, suggestions are made that the Government will sanction a renewal of nuclear power, at huge cost. Introducing ID cards will be expensive, not least because the Government has committed itself to a cap on the purchase cost of the cards. Elsewhere, a crisis over prison overcrowding has developed as magistrates hand out custodial sentences with an unprecedented ferocity. Then there are the Olympics in London, an event that is only theoretically budgeted for.

Next month, Mr Brown will announce that around 13,000 jobs have been cut in the Civil Service, a significant saving but not enough to pay for a fireworks display let alone the replacement to Trident. Saving money on bureaucrats in the public sector is not as easy as it seems.

The current efficiency savings at the BBC demonstrate that most managers in non-jobs conclude quickly that they are indispensable. Quite often they are the ones with time on their hands to decide where the axe will fall. It does not fall on them. Similarly in Whitehall it is not clear how 80,000 jobs will go, even though the dominant theme of the last election was which party could save most by wielding an axe.

So, in his final phase as Chancellor, Gordon Brown confronts again the issue that has shaped his political life since 1992. Where to move next in relation to public spending? At a time of declining growth this was always going to be the thorniest question of the Government's third term. Based on relatively optimistic growth forecasts the rate of increase in spending on the NHS and schools is due to fall sharply fairly soon. The squeeze on other departments, including the Ministry of Defence, will be tighter still.

It should go without saying that the level of public spending matters hugely, but in Britain there is still a widespread assumption that a high level of investment in public services is a waste. I have never understood why most people renovate their own homes by spending a lot of money on them, but assume that expenditure on public services is a dangerous indulgence.

Last week's debates on the latest proposals for secondary schools were prefaced often with the observation: "It is not just a matter of resources..." Of course it is not, but imagine a proposal for much smaller class sizes, to compete with those in private schools. That would be revolutionary and remove at a stroke the main appeal of the private sector. It would also cost a substantial amount of cash.

Such a prospect is a long way off for Britain. Here the political context is worrying and contradictory. There is almost a consensus in the media that the Government plans to spend too much. Yet all the pressures are for even higher increases.

This contradictory context is a strong challenge for the Conservatives who have yet to come to terms with "tax and spend". In particular, they accuse the Government of profligacy, but would they oppose the replacement of Trident and the renewal of nuclear power stations? Would they also oppose more funding for prisons and the Olympics? On some of these issues they will be more enthusiastic than most of the Labour Party. While promising tax cuts, they are higher spenders than they dare to realise.

But, for a Labour Government scared of putting up taxes, the context is more immediately daunting. Mr Brown intends to make the next spending round in 2007 a fundamental debate about priorities for the next decade in each department and hopes to attract a degree of consensus, at least in the media, about what needs to be done. Almost certainly, the spending round will be the most important event of this Parliament, establishing dividing lines between the two main parties that will dominate the next election.

For now, it is the dividing lines within the parties over how much should be spent, and on what, that matter more. Tax and Spend, the issue that dominated the 1980s and 1990s, remains the most explosive policy area in British politics.