A rising star of the Conservative right has been secretly recorded suggesting David Cameron may have to renege on his pledge to protect NHS spending if the Tories win next May’s general election.
Kwasi Kwarteng, a senior figure in the Conservative Free Enterprise Group, was taped suggesting that a future Conservative government would have to consider cutting all areas of public spending – including health, schools and international aid, which are currently ring-fenced – to clear the deficit.
His comments will embarrass the Conservatives ahead of Wednesday’s Autumn Statement by George Osborne.
They lift the lid on the private pressure on Tory ministers to take a tougher line on spending cuts after the election.
The demands do not represent party policy but the Free Enterprise Group has about 40 Tory MPs as members – including the Treasury ministers Andrea Leadsom and Priti Patel – and represents an influential strand of Conservative thinking. “We have always been very clear that deficit reduction is absolutely important and if you are going to reduce the deficit then everything should be put on the table and considered equally,” Mr Kwarteng told a meeting of the right-wing think-tank the Institute of Economic Affairs (IEA).
“It’s common knowledge that there has been a consensus on international aid… that we should ring-fence that, [and] on health spending. I think that consensus will be under a lot of strain given the budget realities.” He added: “That will force change in the political discussion.”
Mr Kwarteng, who has been tipped as a future cabinet minister, has stood by his remarks. “This is part of a responsible debate. Given where we are, if we want to meet the target [for deficit reduction] we will have to look at expenditure,” he told The Independent.
“The Conservative Party has a very clear line on this. What we were saying in the IEA is not party policy. If you are going to be serious about deficit reduction, you might have to look at everything.”
Mr Kwarteng also told the IEA meeting that under current plans it was “quite optimistic to balance the budget or eliminate the structural deficit” by 2017-18 as the Chancellor plans. He suggested that deeper spending cuts might be needed to fund the £7.2bn of tax cuts floated by David Cameron at the Tory conference in September. “The thing is that you can’t reduce taxes really without reducing spending. It’s a con,” he said.
Jonathan Ashworth, Labour’s shadow Cabinet Office minister, said: “This recording shows that Tory MPs don’t like David Cameron’s promise to protect the NHS and will fight it if they win the next election. It just proves what we’ve always said: You can’t trust the Tories on the NHS.
“George Osborne will offer the country only missed targets and tax cons. When even Tory MPs tear in to Tory plans, people will know they cannot trust promises made by George Osborne or David Cameron.”
In his Commons statement, the Chancellor is expected to say: “Now Britain faces a choice. Do we squander the economic security we have gained, go back to the disastrous decisions on spending and borrowing and welfare that got us into this mess? Or do we finish the job? I say: ‘We stay the course to prosperity’. We support people who want to work hard and get on.”
The deficit-reduction challenge facing the next government will become clearer on Wednesday. Ministers are anxiously awaiting the Office for Budgetary Responsibility’s verdict on whether a “tax gap” estimated at £17bn of falling income tax revenues is a temporary blip or permanent change which could mean even deeper spending cuts in the 2015-20 parliament. Ministers hope the explanation is a “time lag” and that tax receipts will recover as earnings grow.
The issue is politically sensitive because the shortfall stems partly from the Coalition’s decisions to raise the personal tax allowance to £10,500 by next April and to cut the 50p top rate on earnings over £150,000 to 45p, which persuaded high earners to defer bonuses to keep down their tax bills. Tax revenues have also been hit by the creation of many low-paid and part-time jobs, wages rising more slowly than inflation and people becoming self-employed after losing salaried jobs.
In March, the OBR forecast income tax receipts in the current financial year at £166.5bn. But the IPPR think-tank estimates an £8bn shortfall. Its study for the TUC found that, if earnings had grown in line with the OBR’s forecast in 2010, tax receipts would be £17.1bn higher in the current financial year. If wages had returned to pre-recession trends, tax revenues would be £30bn higher.
Labour will argue that wage stagnation and low-paid jobs have undermined deficit reduction. Ed Balls, the shadow Chancellor, said: “This cost-of-living crisis is why the Chancellor will have to admit he has broken his promise to balance the books by next year.”
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