Treasury finalises spending overhaul

DETAILS of the most wide-ranging review of public spending in a decade are to be announced shortly by the Treasury. The rolling programme, which Treasury sources say could take most of the Parliament to complete, comes as public borrowing is soaring and MPs fear tax rises rather than tax cuts will be needed before the next election to balance the budget.

The exercise was agreed by Cabinet shortly after the last election, but has taken on a new significance with public borrowing rising sharply in the recession and expected in the City to reach pounds 50bn.

Gordon Brown, the shadow Chancellor, said yesterday that the Government must uphold Conservative election pledges on public spending. There would be a wave of anger throughout the country at the consequences for health, schools, transport, public amenities and the quality of life if the promises of 1992 became the betrayals of 1993, he said.

The review reflects the Treasury's belief that a large part of the Government deficit is 'structural', rather than an automatic result of recession.

The Organisation for Economic Co-operation and Development believes this underlying deficit could be around pounds 18bn. The Government has long claimed that the deficit is entirely the result of recession - but it may be forced to admit otherwise in the Budget next month.

The review will attempt to look at priorities and trends five to ten years ahead rather than the normal three-year spending survey and is being described as the biggest and hardest look at public spending since Lord Howe's review after the Conservatives took office in 1979.