Page last updated at 11:01 GMT, Saturday, 19 July 2008 12:01 UK

Darling: Public feel 'squeezed'

Treasury building
The government is set to face a tax revenue shortfall

Chancellor Alistair Darling has warned his Cabinet colleagues not to expect any more money for schools, hospitals or transport.

He said people were feeling "squeezed" by rising prices and would not tolerate higher taxes for public services.

He told the Times newspaper that he did not believe there would be a swift improvement in the economy.

The Tories said his hint that borrowing rules might be relaxed dealt a fatal blow to the government's reputation.

Period of uncertainty

Mr Darling told the newspaper that ministers who ask for more cash will get a very short reply.

He also suggested that bringing burgeoning public borrowing under control would be politically unacceptable.

It's basically the end of the Brown era of economics
George Osborne
Shadow chancellor

"There are a lot of people in this country who feel they work hard, and they're feeling squeezed," he said.

"So every chancellor has to be conscious of the fact that there's a balance to be struck between how much you can spend, and how much people will say, 'OK, if you've another pound to spend, remember me as well."

Earlier, Mr Darling conceded that the Treasury's fiscal rules were under review - saying it was right to allow borrowing to support the economy during a period of uncertainty.

The Tories say this would mean the end of Gordon Brown's reputation for prudence.

The BBC understands that officials are drafting a looser framework, so that the Treasury would not have to break the present borrowing limit of 40% of national income.

The rules were laid down by Mr Brown as chancellor, after Labour came to power in 1997. He promoted them as evidence of the prudent way he was running the economy.

But it is predicted these will be breached as the government faces an 8bn tax revenue shortfall, because of the slowdown on the High Street, the housing market stalling and a drop in company profits.

Speaking earlier shadow chancellor George Osborne said: "It's basically the end of the Brown era of economics."

People have reached a limit in their willingness to pay tax
Vince Cable
Lib Dem Treasury spokesman

Liberal Democrat Treasury spokesman Vince Cable described news of the Treasury's deliberations as "embarrassing, even humiliating" for the government.

He said: "People have reached a limit in their willingness to pay tax, and consequently public spending must be restrained.

"But ministers must not simply lop off the easiest bits of their spending commitments. Instead, the government needs to be very clear in setting its priorities for spending.

"This should include taking an axe to public sector bureaucracy, in particular the highly paid managers who occupy lucrative positions in quango land."

Robert Chote, director of the Institute for Fiscal Studies, said the government should have rethought the rules "before the point at which it looks as though you are just about to break them".

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