Budget Aftermath: Labour warns of pounds 61 cut for each local authority school place: Bigger classes and more crumbling buildings are forecast. Patricia Wynn Davies reports

THE 'biggest tax hike in history' could be compounded by a pounds 61 cut for each local authority school place and as many as 9,000 fewer new homes planned by housing associations, Labour said yesterday.

Donald Dewar, Labour's social security spokesman, also predicted that Kenneth Clarke's defusion of the row over VAT on fuel within his own party would be short-lived when pensioners realised their extra 50p a week would almost be wiped out by the tax on home insurance.

Gordon Brown, the shadow Chancellor, said all kinds of taxation would rise from 34.25 per cent of national income this year to 38.5 per cent by 1998-99 on government forecasts. Freezing personal and married couples' allowances and cutting mortgage interest relief would mean a rise of pounds 4.05 a week for the typical family from 1994-95. The 'three new Tory taxes' on holidays, home insurance and car insurance would add a further 60p.

The combination of Mr Clarke's Budget, higher National Insurance contributions and VAT on fuel imposed in March meant the typical family faced a tax rise of pounds 10 a week from 1994-95 and pounds 16 from 1995-96.

According to an analysis of spending cuts by Harriet Harman, shadow chief secretary to the Treasury, while the increased Department for Education budget will help grant-maintained schools, local authority spending will be cut by 1.2 per cent in real terms, leading to larger classes and more crumbling school buildings.

Stephen Byers, the MP for Wallsend, said the 1994-95 2.3 per cent increase in local authority total standard spending announced by Mr Clarke meant schools faced cuts of pounds 439m or pounds 61 for every nursery, primary and secondary pupil. Most authorities and even some ministers believe a 5.2 per cent rise was needed to protect services.

John Gummer, Secretary of State for the Environment, will today announce details of spending for each local government service. Since education accounts for about 40 per cent of the total budget it is likely to receive the average 2.3 per cent or a figure very close to it.

Mr Byers said: 'If education receives the average 2.3 per cent increase it will be a devastating blow for our schools. Classes are bound to get bigger and the quality of education will suffer.'

Ms Harman said Shelter, the housing charity, had estimated that a pounds 300m cut from the housing associations' approved development programme threatened 9,000 planned new homes. 'If the shortfall in public funding is made good by borrowing from the market, rents could rise by even more than the 33 per cent the National Association of Housing Associations are already predicting for 1992-95,' she said.

Don Foster, a Liberal Democrat welfare spokesman, said the compensation package for VAT on fuel was pounds 300m less than was recommended by the Social Security Advisory Committee. 'Peter Lilley has created yet another poverty trap by compensating only those on benefits but not the low paid,' he said.