Mr Clarke can allow higher spending on hospitals and schools succeed in producing prudent borrowing forecasts and justify a couple of billion off taxes

Mr Clarke can allow higher spending on hospitals and schools, succeed in producing prudent borrowing forecasts and justify a couple of billion off taxes as well. Alternatively he could achieve a bit more with perhaps the abolition of inheritance tax thrown in for good measure by raising corporate taxes. Mr Clarke is either looking at a very modest reduction of a billion or two, perhaps a penny off the basic rate of income tax. But it will be difficult to recoup the extra pounds 500m-pounds 1bn for health and any extra for education just agreed by the Cabinet through cuts in other departments’ spending totals. It would not be plausible for Mr Clarke to announce cuts in the overall spending figure when he stands up on 26 November.

Even an unchanged total will strain credibility.The Chancellor’s other priority is to keep the profile of government borrowing on a downward path without the embarrassment of having to postpone a balanced budget until the next millennium That leaves just two options on the tax front. The massive deficits at hospitals across the country highlight how tough a task the Chancellor set in last year’s spending plans Expenditure control is never easy. In the 12 months before an election, it becomes virtually impossible.The fact that inflation has been lower than expected this year means that the existing cash limits allow for a bit more growth in real terms than expected. The Government’s borrowing requirement this financial year, the fifth of the recovery, is likely to be a couple of billion higher than the Treasury’s latest forecast of pounds 26.9bn. If you believe this – and half the City does, while the other half reckons it is simply news management to prepare the ground for a big giveaway – then the health and education spending deal reinforces the message.
For the Budget arithmetic looks pretty unforgiving. The threatened NHS crisis has been averted at the eleventh hour – but does this mean there will be no room at all for tax cuts?

Mr Clarke has been engaged in a one-man campaign to persuade both the City and his own party that nobody should be looking for a big tax bonanza this year.

The pre-election Budget designed to appeal to our virtue rather than our pockets is fast becoming a matter of financial necessity for Kenneth Clarke, rather than one of choice. In the bizarre and secretive manner in which these decisions emerge from the dingy corridors of Whitehall into the light of day, it has become clear that yesterday’s Cabinet meeting found extra cash for spending on health and education, the Government’s two priority areas. It said the pro forma gearing would rise to more than 350 per cent. It also questioned its rival’s assumptions about the potential synergies, saying they were “optimistic”..