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 sets 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 but 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 are given special protection in his plans. But transport, defence and a host of other big Whitehall spending commitments will suffer an icy blast. Overall spending increases will be held to zero for the first two years of a Conservative governmentand limited to two per cent thereafter.

Mr Letwin said: "The choice at the next election will not be about whether government spending should rise, but about how fast government spending should rise."

He said the differences between Labour and Tory on the issue were not great. "We both agree the state has to grow," he said. "We both agree it has to grow more slowly."

Mr Letwin said that the Conservatives would bring down overall spending "gradually" to save an eventual £35 billion a year. That, he said, would avoid the tax rises "inevitable" under Gordon Brown. Labour said his figures amounted to cuts in services, adding that it would challenge Tory candidates in each constituency "to explain which school, which hospital, which police station they will close".

But Mr Letwin insisted: "We do not need to slash and burn.

We do need to take some tough policy choices." On tax, Mr Letwin declared: "I hope to be able to cut taxes even in the early years. But I cannot be certain."

His caution marks victory for the softliners. A hard core led by the party's co-chairmen Lord Saatchi and Dr Liam Fox had pressed for a higher priority on pledges to reduce the tax load on middle England.

Mr Letwin said savings would be found by cutting civil service jobs and steering resources to the front line.

Labour plans to save £15 billion by cutting 80,000 civil service jobs were leaked today to the Financial Times in what was seen as a 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 target, however, does not take account of the rise in inflation. Once that is allowed for the spending growth drops to slightly more than six per cent.