Budget: Fiscally prudent package helps to calm Tory nerves

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Kenneth Clarke yesterday began to calm the frenetic mood on the Tory back benches by preparing the ground for big pre-election tax cuts, while judiciously stealing the Labour Party's thunder in attacking unemployment.

A fiscally prudent but studiously unexciting Budget was broadly well received within his own party, with some past Tory critics of government economic policy welcoming the Chancellor's success in reducing public spending for next year by pounds 6.9bn.

His decision to spend pounds 600m on relief for business rate payers and to increase tax allowances for the over-65s by pounds 430 a year addresses serious grievances at the Tory grassroots - particularly in southern England. But Mr Clarke stuck firmly to his promise not to reverse the second-stage rise in VAT on fuel. Despite a possible parliamentary revolt he offered only modest concessions, increasing cold-weather payments by pounds 1.50 and making available an extra pounds 10m to be spent on insulation grants.

Close allies of Mr Clarke, who admitted last night that it had not been the ''raciest'' of Budgets, said it was a ''slow burner'' that would enhance his reputation as a tough but imaginative Chancellor. The measures to reduce unemployment and boost industry were cited as evidence that its politics were very much his own.

Mr Clarke's announcement came after John Major had announced in the Commons that he did not intend a new vote on VAT on fuel - which will only take place if Labour succeeds next week in winning a procedural motion to be treated as an issue of confidence, like Monday's European Finance Bill. Mr Major said that the Bill was in a ''different category'' from the European Bill, though he added: ''It would clearly be a very important vote if a fresh vote was manufactured on this issue.''

Although ministers said they were confident that the threat would be defused, the decision not to make the vote a confidence issue reflects a shift from previous ministerial explanations of its action over the European Finance Bill. Cabinet members explained the European Bill had been made a confidence issue because it was as important to the Government's European policy ''as the Budget was to its domestic policy''.

Tony Blair, the Labour leader, insisted in the Commons yesterday that the economic package would go down in history as the ''VAT-on-fuel budget''. He said there would be two distinct views of yesterday's Budget: ''One is the Conservative politicians' view, and the other is the view in the homes and the workplaces and the streets of this country.''

As the prospect evaporated of John Major being forced into a leadership contest before next year, Mr Clarke was judged to have strengthened his own long-term prestige, as MPs predicted that he had provided a platform for tax cuts before the general election. One ex-minister on the left of the party pointed to the dictum of the late Tory Chancellor Ian Macleod that the reputation of a Budget hailed with instant enthusiasm was rarely long lasting, and added: ''My bet is that reverse will be the case with today's Budget.''

Most MPs left a meeting of the backbench finance committee last night convinced that the reduction in projected public spending by pounds 24bn over the next three years - which provided the main flourish in the concluding passage of Mr Clarke's 87-minute speech - would leave ample scope for tax cuts before the general election. But not all were convinced that they would be cut next year rather than in 1996.

Reaction on the right was more mixed, with some populists regretting that he had done nothing in this year's Budget to reinforce his closing declaration that he would ''in due course go further''. Sir Rhodes Boyson, MP for Brent North, said: ''The longer we leave it, the less the electorate will believe us.''

But others on the monetarist right - including Nicholas Budgen, one of the eight Euro-rebels disciplined on Monday night - were impressed by the drive on public spending and welcomed the thrust of the Budget.

Labour seized swiftly on Mr Clarke's pounds 680m package of measures to reduce unemployment - including the new National Insurance ''holiday'' for employers recruiting workers who have been unemployed for more than two years - as evidence that the Tories were stealing the Opposition's political clothes.