Clarke signals softly, softly Budget strategy

THE CHANCELLOR last night promised a 'constructive Budget to nurture recovery' in the clearest hint yet that he will tread softly with increases in taxation.

Kenneth Clarke ruled out as spurious any threat of an increase in the 17.5 per cent basic rate of value- added tax. He left open the option of imposing VAT at 8 or 17.5 per cent on newspapers and other zero- rated goods in a tax-raising package which informed sources said would be limited to about pounds 2bn- pounds 3bn.

Rounding up the five-day Commons debate on the Queen's Speech, the Chancellor said the recovery was fragile, and signalled that he will deliver a Budget for growth and jobs next Tuesday. 'There are far too many people out of work in this country. Unemployment has come down but it is an unacceptably high level. We do have to get industrial production higher. It is going up, unlike elsewhere in the G7, but it has to go up faster.'

Reaffirming his long-term commitment to the discipline of the European exchange rate mechanism, the Chancellor dimissed suggestions by anti-Maastricht Tories that the recovery began with Britain's exit from the ERM in September 1992. Mr Clarke said recovery had started 18 months ago.

The Chancellor's pledge not to endanger recovery followed a warning yesterday by the Confederation of British Industry that it had become more gloomy about the economy. The CBI cut its forecast of economic growth in 1994 from 3 to 2.4 per cent.

The employers' organisation has become more worried since the summer that recession in Europe will depress world trade. Its November industrial survey showed more manufacturers reporting export order books below normal than in any month since February. It also showed fewer manufacturers expecting to step up production.

Dun and Bradstreet suggested recovery was unlikely to accelerate. The information firm said that its latest survey suggests 'continued growth' but implied there were no firm signs of activity speeding up.

The survey showed more companies across Europe are expecting employment to fall compared with a year earlier, the twelfth successive quarter firms have predicted shrinking employment.

The importance of the Budget to Tory fortunes is underlined by a Mori poll in today's Times showing the Conservatives with 29 per cent support, Labour with 47 per cent and Liberal Democrats with 22.

Inside Parliament, page 8

Lib Dem 'Budget', page 9

Hamish McRae, page 33