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, it was claimed.
But with an eye on the election due within months, Gordon Brown stepped in to maintain a multi-billion pound spending boost to protect frontline services like schools and the NHS.
According to reports today, 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 report said, fearing the VAT rise would hamper any economic recovery.
A Treasury official said: “Ministers look across the range of options and it is no surprise that other ways of revenues were being examined.”
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 four years in an “orderly way” that would not harm recovery.
Among the revenue-raising measures were a 1% pay rise cap for public sector settlements, and a 0.5% increase in national insurance contributions – but both of these come in from 2011, after the next election.
Immediate measures included the restoration of the VAT rate to 17.5% from 15% on January 1, and a one-off 50% levy on bank bonuses over £25,000. The report was widely seen as drawing the battle lines for an election expected in the spring.
Mr Darling was warned 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.
The influential Institute for Fiscal Studies said the figures in Mr Darling’s Pre-Budget Report implied “severe cuts” across departments such as housing, transport, higher education and even defence.
The IFS estimated Mr Darling had only a six-in-ten chance of complying with his own legal responsibility to halve the £178 billion deficit within four years, based on the accuracy of previous Treasury forecasts.
Overall, it calculated an extra £76 billion, the equivalent of £2,400 per family, would have to be found over the course of the next two parliaments.
Mr Darling acknowledged Britain was facing “a tough few years” but denied it was heading for a decade of austerity.
Tory leader David Cameron accused the Chancellor and Gordon Brown of behaving like a pair of joyriders “smashing up” the economy and not caring about the mess they left.
Gordon Brown said it was “completely wrong” to suggest that he overruled Alistair Darling over taking tougher measures to reduce Britain’s ballooning deficit.
He publicly backed his Chancellor, saying the pair worked “very closely together and continue to do so”.
The Prime Minister was speaking amid reports that Mr Darling originally came up with “tougher” measures for this week’s pre-Budget Report (PBR) but Mr Brown stepped in to maintain a multi-billion pound spending boost to protect frontline services.
Challenged by a journalist over the claim at a joint press conference in Brussels with French President Nicolas Sarkozy, Mr Brown said: “You are completely wrong. Alistair Darling and I have worked together for many, many years and work very closely together and continue to do so.
“I want to praise him for the Pre-Budget Report which he has given to the House of Commons which assures people that we have both a fiscal defect reduction plan and at the same time we can get resources to our combined public services.”
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