Civil Service cuts to bring down taxes

COLIN BROWN

Chief Political Correspondent

A swingeing 5 per cent cut in the pounds 15bn running costs of Government departments across Whitehall has been imposed by the Treasury to make room for Budget tax cuts.

The cuts, which could amount to about pounds 750m, will mean substantial job losses for civil servants, but the effects will be felt across every department, from prisoners being locked up longer in jails to reductions in lighting and heating in Whitehall.

The Deputy Prime Minister, Michael Heseltine, was behind the drive to cut the running costs of Government, in a joint initiative with William Waldegrave, Chief Secretary to the Treasury.

"Five per cent across the board has been agreed. It is exactly what people expect in the public sector. Everyone in the private sector has been down- sizing through technological changes and savings on headquarters. Whitehall will have to do the same," said one senior ministerial source.

Ministers are braced for an outcry when the impact of the cuts is disclosed after the Budget, but they are convinced that it will prove popular with Tory backbench MPs and supporters in the constituencies.

The order for cuts in running costs led to protests from some ministers, including Peter Lilley, the Secretary of State for Social Security, who said in a leaked letter to Mr Waldegrave: "It fills me with despair. The impact on operations will be devastating."

It is understood that Mr Lilley was given special dispensation to avoid the full impact of the cuts. He argued successfully in the EDX spending committee of the Cabinet, chaired by Kenneth Clarke, the Chancellor, that it would be counter-productive. He is mounting a battle against social security fraud, which will require more enforcement officers.

The Inland Revenue also escaped the 5 per cent cut, to carry out its anti-fraud initiative. But the axe has fallen heavily on other departments, including the Home Office. David Evans, general secretary of the Prison Officers' Association, last night said his sources had warned it could lead to prisoners being locked longer in their cells and being denied education.

The Health Secretary, Stephen Dorrell, is planning deep cuts in NHS management. He used the announcement of his five per cent cut in running costs at the Conservative Party conference to answer criticism that the changes to the NHS had led to boom in jobs for health managers.

It could also lead to more private sector involvement in the running of Whitehall departments. The Treasury is looking for a private sector company to refurbish its Victorian offices in Whitehall and to lease part of it back to the Treasury in an attempt to cut its costs.

The cuts to be announced with the Budget on 28 November will go deepest into capital spending projects, such as hospitals, roads, and housing. The private finance initiative is being used to fill some of the gap.

A drive towards more privately financed NHS hospitals will be heralded next week by Mr Dorrell. The Home Secretary, Michael Howard, will use private finance to build more prisons. If he goes ahead with the recommendation for a new maximum security super prison, he has decided it will have to be financed by the private sector.

Meanwhile, the Government will today unveil is last full legislative programme before the election, with a series of headline measures on crime, education, housing and immigration, which senior party managers are confident will put Labour on the defensive.

The Queen's Speech was being billed in advance by senior ministers as part of an "autumn offensive", linking the legislation with this month's Budget as the building blocks for the Tories' long awaited political recovery.

A senior minister last night said several of the 15 Bills would help the Government to expose the gap between the "rhetoric and reality" of Labour policy.