Clarke's tax-cutting splits the Cabinet

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The Chancellor is facing a Cabinet split this week over his efforts to cut spending to make way for tax cuts in the November Budget.

Kenneth Clarke will chair a meeting of the EDX Cabinet committee this week in an attempt to resolve the spending row with the secretaries of state for health, education and social security, who have still to settle their budgets.

Gillian Shephard, the Secretary of State for Education, is privately challenging the tax-cutting strategy to ensure it does not damage public services. She yesterday made it clear she wanted the Cabinet to reach a collective decision.

Speaking on BBC1's Breakfast With Frost programme, she said: "At the moment, what we are doing across government is arriving at collective decisions about the balance between public spending and the needs of the economy.

"This obviously includes tax cuts. You can imagine there is a vigorous debate. There always is. It is particularly vigorous this year because the whole issue is given a very high profile."

Paddy Ashdown yesterday raised the stakes in the political row over the future of Britain's schools by writing to every Tory backbencher urging them to put education before tax cuts.

The Prime Minister gave Mrs Shephard his clear backing by warning: "Don't mess with Gill." But he warned Tory supporters at last week's Conservative Party conference that the Government would be "ruthless" with spending priorities. That was seen as a signal that some unpopular decisions will be announced in the Budget in November.

The Chancellor, who warned the party that it could lead to policy changes, has summoned his Treasury team to a meeting on Friday at his country residence, Dorneywood, to thrash out the Budget strategy. He is seeking cuts of pounds 300m more by Stephen Dorrell, the Secretary of State for Health, and is demanding deeper cuts by the Secretary of State for Social Security, Peter Lilley.

Mr Lilley omitted mention of lone parents from his speech. But ministerial sources confirmed that a cut in new claimants for the lone parent's allowance will be announced in the Budget.

He promised to curb fraud as a further attempt to save money, but a further squeeze on welfare spending has been ordered by the Treasury.

There were strong rumours at the Tory conference that the Treasury axe could fall on defence, in spite of a promise by the Prime Minister to last year's conference that the big changes to defence were at an end. Michael Portillo, the Secretary of State for Defence, will be under pressure today, as a Commons debate on defence starts, to give renewed assurances that his budget is not being plundered for tax cuts.

The Cabinet minister for public service, Roger Freeman, will announce a fresh round of cuts to reduce the cost of government. But the Secretary of State for Transport, Sir George Young, has had to bear the brunt of the cuts. The roads programme is one of the principal victims and major schemes, including the Newbury by-pass, are likely to be shelved.

Tories on the left wing of the party are alarmed at the threat to services. One MP said: "We cannot afford tax cuts."