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Wednesday, 31 January, 2001, 14:50 GMT
Spending grows 'slower under Labour'
Gordon Brown
The Budget may be the last before the General Election
Public spending has grown more slowly under Labour than under the last Conservative government, according to figures released by the influential Institute for Fiscal Studies (IFS) in their Green Budget.

It shows that total government spending rose on average by 2.6% annually in the last Parliament under John Major, compared to just 1.2% in the present Parliament to the end of the current financial year.

Much of that was accounted for by increases in non-discretionary spending on items like social security, but just taking into account departmental spending alone, which the government controls, spending only grew by 2.1% in this Parliament, compared to 2.2% previously.

Most of the spending restraint was in the first two years of Tony Blair's administration, when spending actually fell as he stuck to the previous government's spending targets.

After five years of the current Parliament, if a general election does not intervene, the government would be increasing spending by 2.9% annually.

Bigger surplus looms

The strong fiscal position, however, means that Chancellor Gordon Brown has more to give away in the future.

That might come as soon as the next Budget, with the IFS suggesting that this year's surplus may reach 15bn.

That is 5.8bn greater than the government predicted at the time of the November pre-Budget report, and leaves scope for further tax cuts, boosts to benefits or spending on key public services.

Sir Eddie George and Gordon Brown
Mr Brown could also benefit from further rate cuts
Mr Brown has already said that he wants to target tax cuts on deserving groups, and families with children and pensioners look likely to be the main beneficiaries.

With a general election expected in May, the government is widely expected to spend much of its surplus - although Mr Brown insists there will be no return to "boom and bust".

And the IFS says that booming tax receipts could give him an extra 3bn - 4bn to spend by 2002-03 while still meeting his financial targets.

If the economy grows faster than 2.25% a year, then that figure could rise even further.

Steady growth

The government has been benefiting from steady economic growth, which has meant that tax receipts have grown in real terms by some 17bn more than projected four years ago just before Labour came to power.

And non-discretionary spending on social security has also declined, as the strong economy has led to cutbacks on spending on unemployment.

The government has also reduced the size of the public debt, leading to lower interest rate payments.

But that has been at the expense of higher taxes, with the overall level of taxation some 25bn higher than at the beginning of New Labour's term of office.

However, much of that tax increase was accounted for by the implementation of rises announced by the previous government, such as the fuel duty escalator, or "fiscal drag"- the tendency of taxes to rise when incomes go up.

Total net tax increases as a result of new measures announced by the chancellor only amounted to 1.7bn.

More for families

The IFS says the government will have wide scope to make generous changes to personal taxation, including cuts to the basic rate of tax, widening the 10% band, and increasing personal allowances.

It could also substantially increase child benefit and add to the level of the basic state pension.

And it could increase the value of the new child tax credit, which comes into effect in April and is worth 8.50 a week to families with children.

Mr Brown has signalled that he intends to target tax any cuts at the poorest families, increasing the value of the working families' tax credit and the minimum income guarantee for pensioners.

The IFS points out that although the government has succeeded in making the tax system somewhat more redistributive, this has come at the cost of subjecting more people to a means test, forcing them to reveal detailed information about their families to the authorities to gain benefits.

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See also:

27 Jan 01 | UK Politics
Brown targets poverty
19 Jan 01 | Business
Treasury runs record surplus
05 Jan 01 | UK Politics
Brown rules out tax bonanza
09 Dec 00 | UK Politics
Brown offers 'prosperity for all'
05 Dec 00 | UK Politics
Tories pledge 8bn tax cuts
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