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Thursday, 7 March, 2002, 12:16 GMT
Budget rows begin early
Riot police
Can government afford higher pay for police officers?
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By Steve Schifferes
BBC News Online economics reporter

The rows over the Budget are beginning early.

With just over a month to go before Gordon Brown announces his first post-election Budget, bitter confrontations with spending ministers are occurring over who is to get extra cash.

David Blunkett, Home Secretary
David Blunkett: block on extra cash?
This year's Budget is particularly important, as it is expected to pave the way for tax increases to fund Labour's spending plans for the remainder of this Parliament.

Health, transport and education are already earmarked for additional funds, but Mr Brown is apparently balking at the big increases being demanded by David Blunkett at the Home Office.

The Treasury is insisting that all departments have to prove that they are not wasting any additional money, and has expressed scepticism that paying for more police officers will actually reduce crime on the streets.

Gordon Brown, Chancellor of the Exchequer
Gordon Brown: tough decisions ahead

And Mr Blunkett's controversial plans to boost police pay in return for productivity improvements - which may need to be increased to overcome police resistance - and to build more prisons and detention centres, may also have to be scaled back.

Political row

The row is even more intense as Mr Blunkett is a potential rival to Mr Brown as the next leader of the Labour Party.

This year's Budget could be a real political gamble for Mr Brown, who may be prepared to propose substantial tax increases for individuals for the first time since he became Chancellor.

With the economy slowing down, and the drive to reform public services still short on tangible results, most experts believe that taxes need to rise over the next few years to avoid budget deficits - although there is disagreement on how big the increases need to be.

Mr Brown has given strong hints that tax rises are the best way to fund improvements in the National Health Service, and has refused to rule out tax changes to National Insurance payments or VAT - although the government did pledge at the last election not to increase the basic or higher rate of income tax.

But both Mr Brown and Prime Minister Tony Blair believe that the only way to convince people to pay higher taxes is to demonstrate that they lead to real improvements in public services.

Budget pressures grow

Graph showing taxing and spending

One reason for the early public rows is that this year's Budget (on 17 April) will be closely followed by announcements of government spending plans for the next three years from 2003/4 (in the July comprehensive spending review).

Other departments are also worried that they will lose out, with education secretary Estelle Morris concerned that the need to boost health spending will impinge on investment in schools and universities.

And the transport plans may prove more expensive that previously expected, if the private sector balks at providing the bulk of funds for rebuilding roads and railways, or demands a higher rate of return before entering into future partnerships.

Mr Brown also needs to find more money to meet other key objectives, such as helping the poor and boosting the productivity of British business.

The Budget is expected to put aside nearly 3bn to boost the income of low-income workers through an expansion of tax credits, and up to 2bn to boost training and research and development in industry.

With so many competing demands, and the surplus built up over years of prudence shrinking fast, the Chancellor is facing his most delicate balancing act yet in this year's Budget.

See also:

05 Feb 02 | UK Politics
Brown hints at tax rise
30 Jan 02 | Business
Will taxes have to rise?
05 Nov 01 | UK Politics
Brown refuses to exclude tax rises
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