Strategy for growth could push up council tax bills

PLANS to give greater priority to job-creating projects such as road-building and other infrastructure work could force a cut in the cushion for next year's council tax, Michael Howard, Secretary of State for the Environment, warned yesterday.

Mr Howard told BBC 1's On the Record that he wanted interest rates cut as much as possible as soon as possible, but ruled out tax increases or a rise in public sector borrowing to finance growth.

The scope for more jobs and an improved infrastructure, he said, would have to come from cuts in other areas of public spending - and he hoped no one would underestimate the painful consequences of the choices to be made.

On public sector pay, he said: 'It means that people who are in work will have to accept some sacrifice to help the prospects of those out of work getting jobs.'

But when he was asked about his own estimated spending bid of pounds 2bn to soften the impact of the replacement for poll tax, Mr Howard pointed to the possibility of higher council tax bills, saying: 'These are some of the very, very difficult decisions that we face.'

In an interview with Radio 4's The World this Weekend, John Major said that while he would not go into detailed issues on the spending round, the Government could spend only the money it had. 'The reality is that if you just produce the expansionist policies, spending money as if there were no tomorrow that the Labour Party would advocate, there would be one certain result: interest rates would go up. . .

'We do not want to imperil the fact that we have been able to get interest rates down and will look, when it is prudent to do so, for further reductions.'

The next stage in the development of the Government's economic policy will be delivered by Norman Lamont, the Chancellor, in his Mansion House speech on Thursday. But that is not expected to go beyond monetary strategy. No elaboration of the new policy for growth is expected until the Chancellor makes his Autumn Statement on public spending on 12 November.

But while ministers have been reluctant to talk of detailed projects that can be ruled in or out by Mr Major's new strategy for growth, Mr Howard did come down heavily against an increase in the release of local authorities' pounds 8bn council house sale receipts.

He said that there was common ground between the parties. When Clive Soley, Labour's housing spokesman, had raised the possibility of a change in procedures this year, 'he was immediately sat upon by John Smith . . . If you increase the amount . . . councils spend, it increases the Public Sector Borrowing Requirement; it has an impact on interest rates.'