Rein in spending IMF tells Brown

GORDON Brown was urged to rein in Britain’s ballooning budget deficit by the International Monetary Fund last night.

The warning comes amid signs that Government spending is rising too fast.

The Fund calls on the Chancellor to take an axe to spending in areas such as health and education when it prepares its next Comprehensive Spending Review, due to be unveiled in spring 2007.

Further tax rises – in addition to the oil company taxes imposed in the Pre- Budget Report earlier this month – may also be required to restore the public finances. Mr Brown revealed in the Pre-Budget Report that borrowing in the current financial year will reach £ 37billion, £5billion higher than forecast in his March Budget.

In its annual ‘report card’ on the British economy, the Washington-based Fund also argued it was time for the Government to redraw its rules on borrowing. This follows charges that it has sought to fiddle the numbers by extending the length of the economic cycle.

The Fund warns the Treasury that the frequent changes to the cycle ‘ have proved an unhelpful distraction’ and suggests that the Chancellor rewrite the ‘ golden rule’ once he has put in place cuts in public spending. Under the rule, any borrowing over the period of the economic cycle must be for investment.

But with the numbers of public sector workers rising inexorably, the only way Mr Brown has been able to meet the rules he set himself has been by moving the goalposts.

In June the Treasury pushed the economic cycle two years back to 1997 and in the preBudget report it extended it forward to 2010-2011, stretching the present cycle to 12 years.

For the first time in several years the Fund and the Treasury’s forecast for the British economy agree, both predicting a modest upturn next year with output rising from 1.75 per cent in 2005, to 2.25 per cent next year.

But it is gloomier than the Chancellor about 2007, forecasting 2.75 per cent against Brown’s 3 per cent.

Although the Fund is generally upbeat about the economy, critics of the Chancellor will have a field day with the thinly- veiled attack on his management of the public finances.

The Fund notes that the automatic elements of government spending – social security and interest payments – already amount to 40 per cent of the total. This means that future cuts will have to fall on discretionary spending, which includes the fast- growing health and education budgets.

It believes the 2007 Comprehensive Spending Review ‘ will be the linchpin of the process of ensuring the restraint is accomplished and well prioritised’.

a.brummer@dailymail.co.uk