Chancellor looks to quicker deficit cut

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Alistair Darling has suggested that the Treasury may seek to cut the public spending deficit more quickly if the economy proves more resilient than forecast. Giving evidence to the Commons Treasury committee on Wednesday, the chancellor made the gilts market-friendly pledge while refusing to release details of the Treasury’s spending projections for government departments.

Since last week’s pre-Budget report, the Treasury has been accused of concealing from parliament and the public the true implications of its deficit reduction plans for spending on health, education, defence, transport and other departments. In a letter to Mr Darling on Wednesday night, George Osborne, shadow chancellor, called for immediate publication of overall departmental spending projections, asking: “What are you trying to hide?” The chancellor indicated that he was considering what additional information he could make public.

But the message that Mr Darling was keener to communicate was aimed at financial markets and ratings agencies. He went out of his way to make clear he would seek to cut the underlying deficit faster than current plans if the economy performed well.

“Clearly, if things are better than I expect, in a couple of years’ time if it looks like growth is taking place more strongly, then we would want to do more to reduce the structural deficit,” the chancellor said.

His reference to the “structural deficit” showed the Treasury was not just expecting a faster fall in headline borrowing if the economy grew faster than 1.5 per cent in 2010 and 3.5 per cent in 2011, but was planning to pay down debt.

Dave Ramsden, the chancellor’s chief economic adviser, clarified the point to MPs, saying that if growth were indeed faster, officials would be able to improve their assumptions for non-cyclical tax revenues and public spending and this would bring down the underlying deficit without necessarily raising tax rates or cutting spending faster.

Mr Darling did not bow to pressure from MPs to publish his projections for annually managed expenditure – such as debt interest and social security payments – and total departmental spending for the three years after 2011, saying that this was the practice the Treasury had followed for the past 10 years.

Expert bodies such as the Institute for Fiscal Studies have estimated cuts of up to 19 per cent over three years for “non-protected” departments and Mr Darling accepted that there was a legitimate interest in indications of the impact of government’s fiscal consolidation plan for departmental spending.

“I have been reflecting on this for some time and think there are areas we can go further,” the chancellor said.

Treasury insiders later indicated its most likely course would be to publish projections for annually managed expenditure for the years after 2011. That would allow others to calculate figures for departmental spending, and the Treasury would be content provided it was understood that these numbers were not settled government policy and set in stone.

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