Brown ends spending spree

Britain's finance minister was forced to end a three-year spending spree on public services yesterday in a budget that opened the tax-and-spend battle that will help shape the next election.

With revenues falling, Gordon Brown fell back on higher borrowing to balance the books rather than resort to electorally damaging tax rises.

But the opposition Conservatives were quick to lay down what political analysts say will become a vital plank of their campaign for the election, expected next year.

"This budget has made it clear that if Labour get a third term, tax rises are inevitable," said opposition Conservative leader Michael Howard.

In his main annual parliamentary speech, Chancellor of the Exchequer Brown skated over the revenue problem and stressed Britain's continuing economic strength.

"The purpose of this budget is to lock in for Great Britain an economic stability that can, and will, endure," he said, pledging an end to "the old British disease of stop-go".

Mr Brown also effectively buried any chance of ditching the pound for the European single currency this parliament by saying Britain was still not ready to join. He would instead review the country's readiness to join the euro again next year.

"Another missed opportunity for Britain," said Lucy Powell, campaign director for the Britain in Europe lobby group. "We are missing out on higher trade, investment and economic growth."

But the meat of the budget was the slowdown in spending on schools and hospitals - the stuff of votes.

Mr Brown had little choice but to halve the rate of public spending growth in the next few years from a near five per cent annual surge of recent years.

He was bullish about the economic outlook, however, forecasting growth of a punchy 3 to 3.5 per cent this year and next, when voters will likely head to the polls.

As a key plank of the policy that swept Labour to power in 1997 promising "things can only get better", Mr Brown had been pouring money into Britain's neglected infrastructure.

But now money is tight - public finances are deep in the red - voters are dissatisfied with public services and the government's popularity has waned, especially over the Iraq war.