BRIAN LENIHAN will halt the decentralisation programme on budget day, as part of a series of spending cuts to ride out the recession.

Government departments and agencies that have started moving out of the capital will be allowed to continue, but three-quarters of the 10,900 civil and public servants originally targeted for transfer out of Dublin will not be relocated.

After a six-hour government meeting on the budget yesterday, cabinet sources indicated that the vast bulk of the programme announced by Charlie McCreevy in the December 2003 budget will be abandoned. The only projects to proceed will be those where construction contracts have been signed or where a substantial number of employees have already begun to transfer.

The decision was informed by two separate reports to Lenihan reviewing the progress of decentralisation. Almost €100m has been spent on buying or leasing buildings and sites and on fitting-out costs.

Ministers yesterday agreed even deeper cuts in spending next year than they had discussed in recent weeks, as the finance minister prepares what is being billed as the toughest budget in 20 years.

Government sources indicated that a significant increase in third-level registration fees is being considered, along with a €2 billion spending cuts package and reductions in funding for local authorities.

Lenihan is not thought to be considering taxing child benefit for high earners. The benefit is paid to more than 1m children at a cost of more than €2 billion a year. The system will be adjusted to secure some savings but the reduction will not be achieved through taxation or means testing.

Yesterday’s meeting reached agreement on bringing current spending next year back to 2004 levels and on changes to the order of major capital projects in the National Development Plan.

Lenihan is expected to claw back more than €500m from workers’ pay packets next year by neither increasing personal tax credits nor index-linking the income tax bands.

A government spokesman said the option of increasing tax rates had not been ruled out, but is unlikely.

On October 14 Lenihan is likely to hit the pay packets of higher earners by raising the PRSI ceiling. One government source said: “This budget is going to make Richie Ryan look like an altar boy.” Ryan was the finance minister in the 1973-7 Fine Gael/Labour coalition.

When McCreevy announced the decentralisation plan in December 2003, he said 10,300 posts would be transferred from Dublin to 53 locations nationwide. The government later widened the scope to 59 locations and 10,900 posts.

Lenihan was told in June that just 2,201 staff of those earmarked for relocation had moved — little more than one in five of the positions due to be relocated.

Only 36% of jobs had been relocated in the 21 centres first identified by the government as “early-mover” locations. Lenihan ordered a freeze on decentralisation in July pending a full review of the scheme.

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