Drivers and drinkers pay for VAT defeat

Drivers, smokers and drinkers will bear the main burden of the emergency mini-Budget unveiled by Kenneth Clarke yesterday to meet the pounds 1bn cost of the Government's defeat over VAT by the House of Commons on Tuesday.

In a Commons statement which made minimal concessions to right-wing pressure for deeper cuts in public spending, Mr Clarke announced new rises in duty from 31 December of 1p on a litre of petrol, 6p on 20 cigarettes, 1p on a pint of beer, 5p on a bottle of wine and 26p on a bottle of spirits.

As Government instability over the last fortnight was reflected in a new poll showing Labour's support at an all-time high of 61 per cent, Mr Clarke blamed the ''disadvantages'' of the new taxes on the Opposition and rebel Tory MPs who combined to halt the second stage increase in VAT on domestic fuel.

Despite some discontent on Thatcherite wing that savings had not been achieved through spending cuts, Mr Clarke's statement was greeted with relief by the majority of Tory backbenchers.

There were some differences at the Cabinet meeting before Mr Clarke's statement, with a right-wing minority suggesting more of the fiscal gap should have been bridged by spending cuts beyond the pounds 6.9bn already planned for 1995-96 in the Budget 10 days ago.

But the whole Cabinet accepted John Major's summing up that a clear majority favoured Mr Clarke's recommendations.

Mr Clarke told the Commons yesterday he had seen no reason to revise his judgement on the balance between tax increases and reductions in what he said had been an ''extremely tight'' spending round.

Right-wing ministers were partially mollified that the rest of the savings - beside the pounds 200m social security compensation cancelled because VAT on fuel will not rise in April - will be found by cutting the spending control totals by pounds 300m for 1996-97 and the next year.

Mr Clarke denied last night he had deliberately chosen headline-making indirect taxes which punished the public for the Government's defeat. The duty rises had been his ''second choice'' for the Budget, he said, adding: ''I did not allow the circumstances of the defeat to influence my choice.''

The Chancellor declared that Gordon Brown, the shadow Chancellor, had a ''nerve'' to protest about them and that he should explain to the drinks industry - protected by last wek's budget because of competition from cross channel liquor sales - and rural motorists why they had been necessary.

But Mr Brown said that while the Commons were relieved at the cancellation of the VAT increase ''they will now ask why it had to take 18 months and four Budgets to bring forward the alternative measures that the Government could have proposed in the first place''. Mr Brown warned the new taxes would cost the ''typical taxpayer'' another 43p for week, and said Labour would only support the tobacco tax.

Asked, in a reference to his role as the Tory right's latest fall guy for the Government's misfortunes, whether he thought the ''right was out to get him'', the Chancellor said: ''You can't be in politics as long as I have without having a few people who are out to get you.'' And the right-left tensions between backbenchers resurfaced dramatically last night when Terry Dicks, a Major loyalist turned on George Gardiner, Thatcherite MP for Reigate, and accused right-wingers of ''conspiring'' against the Prime Minister.

Today's Gallup poll in the Daily Telegraph makes grim reading for Mr Major as he joins his fellow heads of government at the EU summit in Germany today. It shows Labour with a record lead of 39.5 points. Even with the figures adjusted to take account of Tory reluctance to confess allegiance, the poll shows Labour at 50.5 per cent, the Tories at 28.6 and the Liberal Democrats at 15.2.

(Graphic omitted)

Reports, pages 2, 3

Leading article, page 17