The Chancellor wanted to do more to tackle the UK’s ballooning deficit but was overruled by the Prime Minister, according to reports.
Alistair Darling originally came up with “tougher” measures for this week’s pre-Budget Report (PBR) to start making inroads into the £178 billion of public borrowing needed this year, according to the BBC.
But with an eye on the election, Gordon Brown stepped in to maintain a multibillion-pound spending boost to protect frontline services like schools and the NHS.
According to the Guardian, the Treasury wanted to raise the VAT rate above 17.5% next month – a move that could have raised billions for the public coffers.
But Mr Brown and his allies opted instead for a later hike in national insurance, the paper said, fearing the VAT rise would hamper any economic recovery.
A Treasury official told the Guardian: “Ministers look across the range of options and it is no surprise that other ways of revenues were being examined.”
Defending the PBR and the measures taken by Mr Darling, David Blunkett said that the Treasury sources should to be ashamed of themselves if Britain’s credit rating is effected – he added that the government aim to halve it in four years was ambitious, but had to be done.
“If any of these so-called sources… from the Treasury undermine our credit rating… they ought to be ashamed by themselves,” he said.
He added that a longer term view was needed on the deficit, noting that it was “not until 2002 that this Labour government paid off the debt from the second world war” and backed the scale of borrowing saying “if the roof’s taken off your house you take a mortgage out to put it back on”.
In Wednesday’s PBR, Mr Darling predicted borrowing costs would increase this year to £178 billion – up from a previous estimate of £175 billion. He pledged to halve the deficit over the next four years in an “orderly way” that would not threaten the recovery.
On Thursday, Mr Darling was warned by the influential think tank the Institute for Fiscal Studies that he must find £36 billion in new spending cuts if the Government is to meet its commitment to halve the budget deficit over the next four years.
Philip Hammond, Shadow Chief Secretary to the Treasury, said that the reported rift between chancellor and prime minister over the pre-Budget report shows that the Treasury agrees with the Conservatives on the need for a quicker reduction in the deficit.
“While Gordon Brown is attempting to create artificial dividing lines the Treasury is agreeing with us and leading commentators that what’s good for the country is a quicker reduction in the fiscal deficit,” he said.
“Once again Gordon Brown has intervened, insisted on party ahead of country.”
He said Labour were “concealing plans from the general public,” because a consensus on how to deal with the deficit had not yet been reached.
“At the heart of government there is a conflict between the Treasury, who want an early start to fiscal tightening and No.10 Downing Street – Gordon Brown – who wants to claim that that would undermine recovery.”
