Tories accuse Darling of benefits 'con'

Conservatives today accused Chancellor Alistair Darling of a "pre-election con" after it emerged that he did not set aside funding in yesterday's Pre-Budget Report to pay for benefit hikes to be continued for more than one year.

Mr Darling yesterday announced a 1.5 per cent rise in child benefit and disability benefits which are linked to inflation, due to come into effect next April - just weeks ahead of the expected date of the general election.

He announced he was overriding the normal requirement to link the rise to the rate of inflation the previous September, as this would have led to the benefits being frozen because inflation was negative at that point. But he made no announcement on whether the rise could be sustained after April 2011.

Shadow chancellor George Osborne this morning said that the Government's economic plans should be "honest", telling BBC Radio 4's Today programme: "We have got to stop having a pre-election con where you put benefits up weeks before a general election and cut them afterwards."

But Mr Darling denied "electioneering" with the rise, insisting that the benefits would be reviewed again in 12 months' time and the extra cash will not be taken back.

The Chancellor told Today: "I brought forward some of the increases in child benefit and disability benefits - 1.5 per cent - because I thought it would be better to do that rather than have a situation where those benefits were frozen.

"Every year the Government has to have a review of benefits. In 12 months' time we will look at what the situation is and we will know what inflation is in 12 months. The announcement I made yesterday in relation to those particular benefits was for this year.

"I was quite deliberately bringing the thing forward, because otherwise you would have had a situation where these benefits were frozen and I thought that would be a little bit unfair.

"A 1.5 per cent increase in benefits I don't think can, with the best will in the world, be called electioneering.

"It is not a temporary rise, it is a rise we have put in this year and it is not going to be taken back. We will look at it again next year."

Mr Darling acknowledged that yesterday's PBR involved increasing the amount of state borrowing in 2011, compared with the plans in April's Budget. But he insisted that this was part of ensuring a "smooth" path towards halving the deficit within four years.

"What I think is important to do is to keep an eye on the fact that Government borrowing will be halved over a four-year period," the Chancellor told Today.

Cutting borrowing more swiftly, as Conservatives advocate, would require sharper reductions in public spending or a hike in taxes equivalent to 5% on VAT, he warned.

"Some people say we should go further and faster. If you speeded it up by a year, you would have to take another £26 billion out or you would have to put VAT up by 5%. I don't think that would be right.

"I want a reduction in spending that will be done in an orderly way."

The Chancellor added: "It will be tough in a number of places where people will have pretty strong feelings, so this is not easy.

"Whether you are a public service worker, someone on high rates of tax or someone who uses the services, this is going to be tough."

Mr Darling declined to set out the budgets for individual Government departments over coming years. He has said he will protect the budgets for the NHS, schools and police, but would say only that otherwise budgets would be "generally flat".

Departments will have the opportunity to increase funds for priority areas by introducing efficiencies and selling off assets, he pointed out.

Despite acknowledging that Britain was facing "a tough few years", the Chancellor rejected suggestions that the country was heading into "10 years of austerity".

"We have been through quite an extraordinary period which the world has not seen for in excess of 60 years," he said.

"I think what we can do is get into recovery, we can get our borrowing steadily down, but let's not lose sight of something else.

"This is a big country. We should be ambitious about the future. I do think we can get growth - provided we do the right things - we can secure jobs, we can compete with the rest of the world.

"I don't buy this argument that it is going to be 10 years of austerity and we should abandon hope for the future.

"That is not the right thing to do. Yes, we are in a difficult situation, but let's deal with it sensibly over a sensible timescale. But at the same time let's remember there are huge opportunities in front of us provided we are ready to take them."

Mr Osborne told the Today programme that 1% National Insurance (NI) hike announced yesterday for 2011 would impose a £446 million bill on the National Health Service, eating into the very resources which the Chancellor claimed to be protecting.

Mr Osborne said reversing the NI rise would be his tax-cutting priority if the Conservatives won power, although he said he could not promise to do so within the next Parliament.

The Shadow Chancellor told Today: "My overriding objective is to produce a credible plan to get Britain's debt under control, to reduce the budget deficit.

"I believe the best way of doing that is restraining spending. We don't think an additional tax on jobs is sensible in a recovery and we are going to do everything we can to avoid it, but I am not making a specific pledge until I am sure I can deliver on it.

"I am telling you that, of all the Labour tax rises, the one I am most seeking to avoid is that NI rise coming in 2011."

He added: "This country has over-spent and over-borrowed. It has not been under-taxed."

Mr Osborne said the NI rise was "a nonsense" and would represent "a real cut in the health spending as people use it".

An incoming Tory Government would have to "take hard choices and those hard choices have to be taken early in the Parliament", said Mr Osborne.

But he denied this would mean unemployment soaring under a Tory administration, as Labour has claimed.

"Unemployment will be higher under Labour because they are not dealing with this deficit, they are not restoring credibility in Britain's ability to live within its means," he said.

"There are difficult choices coming. I set that out in my speech at the party conference. The Chancellor failed to do that yesterday."

Measures in Mr Darling's PBR will not bear down on the deficit until 2014, said Mr Osborne. Taking swifter action now would deliver "lower unemployment, higher prosperity and sustainable recovery" by breaking the economy's "addiction to debt" and getting it saving and investing for the future, he said.

Yesterday, Mr Darling was forced to concede that the recession in Britain was even deeper than previously thought, with the economy shrinking by 4.75 per cent this year compared with the 3.5 per cent he forecast in the Budget in April.

He increased his forecast of borrowing for this year from £175 billion to £178 billion.

But he was accused by the opposition parties of having "ducked" the most difficult decisions.

Mr Osborne accused the Government of "building up debts that will cripple this country", telling GMTV: "This country has enormous debts. The Government has left an enormous economic mess."

Liberal Democrat Treasury spokesman Vince Cable warned that the Government may face difficulties raising the sums it wants to borrow in the next few years.

Mr Cable told Today: "The Government at the moment can borrow cheaply, but it is very dangerous to be complacent because, looming over the horizon, is this potential problem that if the Government continues to borrow at extraordinary rates - 12 per cent to 13 per cent of GDP - and other countries' deficits are coming down, then Britain becomes exposed.

"One of the disappointments of the PBR yesterday was it didn't set out any convincing programme about how we work down borrowing, as they had the responsibility to do if the budget had been in the wider public interest."

Mr Cable said Conservative plans to start public spending cuts immediately would "make the situation worse" by withdrawing stimulus from the economy when it is still very depressed.

But he said both Labour and the Tories were wrong to "ring-fence" certain areas of public spending for protection against cuts. Even areas like the NHS and schools had specific "foolish" programmes - like over-prescriptive curriculum authorities in the education system - which could be cut.

Mr Cable said: "If the economy is growing strongly there is scope for a rapid paydown of borrowing. If it is weak - and I fear there is a risk of stagnation and relapse - then you have got to be more careful about these things."

The PBR, which drew the battle lines for an election expected in spring, will be pored over today for signs about whether Mr Darling's forecasts are realistic.

Apart from an immediate, one-off, 50 per cent levy on bank bonuses over £25,000 and the planned restoration of the 17.5 per cent VAT rate, the main measures for tackling the deficit will not start to take effect until 2011.

Mr Darling said that, while he was "confident" the economy would begin to grow again by "the turn of the year", confidence remained "fragile" and acting any earlier risked pushing it back into recession.

"We must continue to support the economy until recovery is established. To cut support now could wreck the recovery - that's a risk I am not prepared to take," he said yesterday.

"When Japan tightened prematurely in the 1990s it pushed the economy back into recession, making debt and deficits much higher, not lower."

He said growth in public spending would be held to an average of 0.8 per cent per year as the deficit was cut from £178 billion this year to £82 billion in 2014-15.

"That will mean cuts to some budgets, as programmes come to an end or resources are switched to new priorities. And some programmes will need to be stopped altogether," he said.

Mr Darling insisted that he still believed the economy was on course to record growth of between 1 per cent and 1.5 per cent next year before surging ahead to a rapid 3.5 per cent in 2011.

But figures in the PBR "green book" showed that, by 2014-15, the total public debt would have risen to £1.47 trillion - almost 78 per cent of national income.

Unions reacted angrily to the news that - apart from the Armed Forces - public sector pay settlements would be capped at 1 per cent from 2011, while retail price inflation was set to hit 3.5 per cent.

Businesses, meanwhile, warned that the planned doubling of the increase in National Insurance contributions - from 0.5 per cent to 1 per cent - for employees, employers and the self-employed from April was effectively a "tax on jobs".

As well as the curbs on public sector pay, the Chancellor announced that contributions from the state to the pensions of teachers, local government and health workers and civil servants would be also capped.

The senior Civil Service pay bill would be cut by up to £100 million over three years with any new Government appointment over £150,000 and all bonuses over £50,000 requiring Treasury approval.

Together the measures on public sector pay and pensions will bring in annual savings of £3.4 billion in 2012-13.

The National Insurance increase, which will affect anyone earning more than £20,000, will raise another £2.9 billion in 2011-12 while the levy on bank bonuses will generate an estimated one-off £550 million.