Revealed: Labour's pounds 5bn secret spending cuts

A hidden cut of pounds 5.25bn has been imposed on next year's government spending plans, hitting every departmental budget from education and health through to social security and transport.

Malcolm Bruce, the Liberal Democrats' Treasury spokesman, revealed the swingeing cutback yesterday and said it also threatened to breach Labour's election pledges on policing and overseas aid - with fewer officers on the beat and yet another cut in aid.

The covert cut has been imposed by the decision of Gordon Brown, the Chancellor of the Exchequer, not to compensate departments for the impact of higher-than-expected inflation next year.

While he was eager to reap the dividend in terms of higher revenues - helping to slash public borrowing - he made no attempt to loosen individual departments' tight spending curbs.

A Commons library analysis of the result of that decision was given to Mr Bruce last week in a note which said: "Because of the higher actual and forecast rates of inflation, expenditure in 1997-98 will be some pounds 3bn lower at 1995-96 prices and expenditure in 1998-99 will be some pounds 5.25bn lower."

The Commons library reinforced the point by saying that the extra pounds 1.2bn allocated to health by Mr Brown in last week's Budget would result in only an extra pounds 410m spending, after the additional inflation had taken its toll.

"These developments make an absolute mockery of Gordon Brown's claims to be providing extra money for education and health as most of the extra money will be eaten into by inflation," Mr Bruce said in a statement.

"There is an irreconcilable tension at the heart of this Budget," he told BBC Radio 4's The World this Weekend. "The reality is that there is no ability for the Chancellor to claim that he is boosting key sectors of public expenditure, reducing borrowing and generally improving the public finances with no pain." Departments, he added, had been left with "impossible" spending limits.

A Labour spokesman accused Mr Bruce and his party of "economic illiteracy", but the charge was endorsed by Andrew Dilnot, of the highly-respected Institute for Fiscal Studies. He told the programme: "The planned change in the real level of total public spending is much lower even than the extremely low figures that Kenneth Clarke [the former Tory Chancellor] was forecasting."

While the Conservatives might well be embarrassed by the fact that it was left to the Liberal Democrats to detect the critical detail, some Labour MPs were also showing signs of private embarrassment that the left- wing had been so quiet about the Budget.

Ken Livingstone wrote in the Sunday Telegraph that while Labour MPs had worked themselves up into "a sub-orgasmic ecstasy", Mr Brown had missed his chance to take the steam out of an over-heated economy with a pounds 10bn windfall tax and abolition of mortgage interest tax relief.

"The discipline of Labour's Left in the run-up to the election was absolute, but we cannot be expected to remain silent as we watch the Government sow the seeds of a future Labour general election defeat."