The British Chancellor, Mr Gordon Brown, yesterday unveiled a radical programme of increased public spending over the next three years designed to combine "prudence and stability" in public finances with "investment and reform" in public services.
In the government's most important economic announcement since the budget, the chancellor confirmed his intention to set public spending at 2.25 per cent, a proposal that would add potentially £2 billion a year on average to investment over the next three years. The growth in public spending, which was greater than ministers and government departments had expected, would however be tied to the government's tough spending rules and would keep a tight reign on public sector pay. Spelling the end of the annual public spending round for the remainder of this parliament, Mr Brown told the Commons that the government's twin-track fiscal approach would not only show changed priorities within and between government departments but would refine the government's role so that it was "enabling and empowering, not centralising and controlling".
Two key messages - "toughness" and "long-termism" - had been sent to government departments to force them to produce separate budgets for current and capital spending, such as transport and building projects. Current spending for the next three years would be financed by taxation rather than borrowing, enabling investment in resources in health, education and housing.
While Mr Brown stressed the need to replace "short-termism" with "a new long-term direction" for the renewal of public services, the shadow chancellor, Mr Francis Maude said the government had effectively signalled the "failure" of its comprehensive spending and accused Mr Brown of going soft on public spending.
But Mr Brown said the government would "lock-in" the fiscal tightening announced in the March budget not just in this financial year but also in the next.
The current spending would grow in line with the government's "cautious estimate" of the trend rate of growth in the economy to 2.25 per cent and the government would aim for a ratio of public spending to gross domestic product (GDP) of 39.25 per cent. The government would plan for a surplus on the current budget next year of £7 billion, £10 billion in 2000-2001, and £13 billion in 2001-2002.
Signalling the government's intention to "bear down" on the national debt to GDP ratio to reduce interest payments, he said the ratio would fall from the 45 per cent level inherited from the Tories to 40.5 per cent next year. Thereafter it would fall to 39.5 per cent and 38.25 per cent over the next two years.
The government will also raise £1 billion a year by selling off surplus assets and investment the revenue in schools, hospitals and public services. It also plans to semi-privatise the Royal Mint and sell off shares in the tote.