Tories plan big freeze on spending

THE Conservatives today pledged to raise the money going into hospitals and schools by 9% a year.

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

He signalled that billions could be saved by a massive new privatisation programme.

Mr Letwin said a Tory government would decide what could and should be done better by the private sector - and some tasks government should not be doing at all.

But he refused to give any details, saying it was too early.

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

His proposals in a keynote speech came as the party set out its stall for the next general election. 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 government and limited to 2% 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 £35bn a year.

That, he said, would avoid the tax rises 'inevitable' under Gordon Brown. Labour said his figures amounted to cuts in services.

At a press conference ahead of his speech, Mr Letwin acknowledged that his proposals would be condemned as 'a mouse' by some on the Tory Right and as 'slash and burn' by the Labour Party. But he insisted they were neither.

His caution marks a victory for the softliners in the party.

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

Labour plans to save £15bn 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 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%.

Spending: the Conservative strategy

Health and education. The promise: spending to rise by 9% a year. What it means: £90bn which Labour plans to spend on health in 2005/6 would grow to £98bn the following year and £107bn the year after. For schools, the total would rise from £46.9bn in 2005/6 to £55.2bn two years later. Critically, these figures fail to take account of inflation. This means the real rise is slightly more than 6%. Questions: with Tory pledge to steer more resources to private medicine, would NHS hospitals see any extra cash? The education increase refers only to schools, what happens to universities?

Transport and defence. The threat: transport and defence, like other departments, have spending frozen in cash terms for two years. In transport it means a cut of £600m, or 5%. On defence, it means £2bn is cut.

Questions: which transport programmes would be axed? Where do the defence cuts leave Tory attacks on Labour regarding overstretch?

Whitehall overheads. The promise: civil service recruitment freeze.

What it means: Tories claim it will produce annual savings of £3.4bn by 2012. Question: would frontline services suffer?

Total spending. The promise: to reduce public spending as a share of national income from 42% to 40% by 2012. What it means: if Labour kept spending at its present share of national income, the annual total would rise from £519 to £698bn.

Under the Tory plan it would rise more slowly, to £663bn, bringing a 'saving' of £35bn a year by the end of the period.

Question: can the quality of services be maintained or improved during a squeeze?