Letwin spells out Tory plans

The Conservatives today pledged to raise the money going into hospitals and schools by almost 10 per cent a year.

The increase would be accompanied by a deep-freeze on Whitehall spending elsewhere, said shadow chancellor Oliver Letwin.

His keynote speech comes as the party set out its stall for the next general election.

Mr Letwin deployed for the first time a detailed strategy to balance the burden of tax against the need to maintain and improve key services.

He put early tax cuts on the backburner, to the disappointment of some senior figures in the party.

But he insisted that the strategy would, over time, cut the cost of government and allow room for real tax reductions.

The health service, education and pensions - which will rise in line with earnings - are given special protection in the Tories new Medium Term Expenditure Strategy.

But transport, defence and a host of other big Whitehall spending commitments will suffer an icy blast, with overall spending increases held to zero for the first two years of a Conservative government and limited to just two per cent increases thereafter.

In the text of his speech, to be delivered in London later today, Mr Letwin declares: "The choice at the next election will not be about whether government spending should rise, but about how fast government spending should rise and about how that money is spent."

Even before Mr Letwin delivered his speech, Labour was mobilising to say that his figures did not add up and that they were a recipe for cuts.

On tax, the shadow chancellor declared: "I hope to be able to cut taxes even in the early years. But I cannot be certain." Fuller plans for the tax system would, he said, be spelled out closer to the general election widely expected in June next year.

Mr Letwin's caution marks victory for the softliners in an intense behind-the-scenes battle in the shadow cabinet.

A hard core, led by the party's joint chairman, Lord Saatchi and Dr Liam Fox, had pressed for a much higher priority to firm pledges to reduce swiftly the tax load on middle England.

Mr Letwin pledged massive savings would be found by cutting Civil Service jobs and steering resources to the frontline. Labour plans to save up to £15 billion by cutting 80,000 Civil Service jobs were leaked to the Financial Times. Some saw the timing as a deliberate spoiling tactic.

A press release issued by the Conservatives says that spending on schools and hospitals "will grow by nine per cent per annum in the first two years of a Conservative government."

That figure, however, does not appear in the text of Mr Letwin's speech. He says that spending on the health service and schools in the first two years will rise by "around four percentage points above the trend rate of growth of GDP".

Tory sources insisted that the two figures matched but the shadow chancellor will now face close questioning over the detail and whether his ambitious plans would work in practice.