Brown eyes £3 bln in public sector savings

Labour will slash consultancy and marketing costs to help halve the budget deficit, Prime Minister Gordon Brown said on Monday, two days before Labour updates its tax, spending and borrowing plans.

The government, behind in opinion polls to the Conservatives with an election due by mid-2010, faces pressure from markets and voters to give a credible plan to cut a deficit set to top 12 percent of gross domestic product this year.

A windfall tax on bankers' bonuses and other possible measures on the wealthy could be on the cards in Wednesday's pre-budget report as Labour tries to set a clear dividing line between itself and the centre-right Conservatives.

The Conservatives have said they will take an axe to public service costs to cut debt faster than Labour without harming frontline services such as health and education.

But so far plans outlined by either main party would hardly dent the record budget deficit and few doubt that big tax rises and a very sharp squeeze on spending will have to take effect whoever wins the next election.

Brown outlined an extra 3 billion pounds in savings over four years through cutting advisory budgets and embracing new technologies such as the internet and text messaging - on top of 9 billion pounds of planned efficiencies announced earlier.

"It provides us with the means to deliver these public services in a way that maintains their quality but brings down their cost" Brown said in a speech in London.

"And this will be essential to help meet our commitment to halve the public deficit over four years." 

Two opinion polls this weekend showed that the Conservatives are holding on to a commanding lead which would give them a workable majority in parliament. But the gap with Labour is narrowing and some polls have pointed to a hung parliament.

PRE-BUDGET REPORT

Chancellor Alistair Darling will deliver his pre-budget report on Wednesday and Treasury sources have told Reuters the 175 billion pounds deficit forecast made in April will be revised slightly higher.

Labour has said it will enshrine in law its pledge to cut the deficit in half over four years. Investors have expressed concerns this year that ballooning government debt could harm Britain's top-grade credit rating and undermine the pound.

While tax rises may play some part in cutting debt, spending cuts and ambitious efficiency savings - often treated with scepticism by economists - will also be needed.

"This includes three billion pounds of new efficiency savings identified since the Budget - of which over 1.3 billion will come from streamlining central government" Brown said.

Slashing the number of advisory bodies by more than 100 will save 500 million pounds, using new technology in health, unemployment and student loan services will yield more than 660 million pounds in savings while energy efficiency will save 300 million pounds, according to officials.

Among other measures, Labour plans to slash consultancy fees in half and marketing and communications budgets by a quarter to save a further 650 million pounds. Improving waste procurement will produce 550 million pounds in efficiencies.

Where to target tax rises and spending cuts to bring down borrowing as Britain's recession-hit economy recovers will form a key focus in the election. 

As part of its efficiency drive, Labour is also expected to intensify scrutiny of well-paid civil servants, requiring ministerial approval of any post with a salary above 150,000 pounds a year or any contract with bonuses above 50,000 pounds.

A 20 percent cut in the cost of senior civil servants should also produce 100 million pounds in savings, officials say.