The significance of the Comprehensive Spending Review unveiled yesterday by the British Chancellor, Mr Gordon Brown, was aptly summed up by a Downing Street spokesman who described it as the "most important announcement since the election". Indeed, the review is arguably more significant than the budget as it sets spending targets for all departments for the next three years.
The spending review is designed to achieve several political objectives. In part, it represents a determined effort by the Blair administration to deliver on its pre-election promises. But it is also a welcome attempt to reverse some of the worst effects of the Tory years, notably in the areas of health and education; between them, these areas have secured the lion's share of Mr Brown's largesse.
On the 50th anniversary of the National Heath Service, an additional £21 billion has been allocated to health for the next three years, compared to the £7 billion allocated in the final years of the Major government. Mr Brown also unveiled what he termed the "biggest single investment in education" with an additional £19 billion to help reduce class size, raise teaching standards and provide new facilities. Reflecting the emphasis on "education, education and education" in the election campaign, the Chancellor spoke pointedly of how, in the old economy, it was possible to maintain an education system that advanced only the ambitions of the few. The new economy, he said, demanded a modern education system that advanced the ambitions of all.
Despite the additional funds allocated in some areas, the British Chancellor was anxious to reassure the City and, not least, the middle-class voters who deserted the Tories at the last election, that New Labour will maintain its tight grip on public spending. Every pound of additional funding is contingent, he said, on the implementation of reform and the delivery of performance objectives.
The muted response of the City to the spending plans would appear to signal some confidence in financial circles that Mr Brown can perform a difficult balancing act: he should be able to raise spending in some key policy areas without deviating from the prudent economic management promised by Mr Blair - and without raising taxes.
Much will depend on the performance of the British economy over the next three years. The sharp decline in the rate of inflation, according to figures released yesterday, will bolster hopes of a stronger economic revival. It may be that the interest rate cycle has peaked, at least for now, in Britain.
It is to be hoped that the economic conditions will allow Mr Brown achieve his objective of modernising Britain's health and education services. In truth, the Chancellor has little alternative but to press ahead with his plans - with or without a favourable economic wind. Greater investment in the NHS must form an integral part of Labour's drive towards a more equitable society. And investment in education is the best means of reversing Britain's long-term economic decline.