Grassroot Tories revolt over VAT on fuel

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(First Edition)

THE CONSERVATIVES face a grassroots revolt at their conference over the decision to impose VAT on fuel and heating.

About two dozen constituencies have tabled motions critical of the move, revealing deep unease among party activists at the tax rise, announced by the former Chancellor, Norman Lamont.

Ministers are already canvassing the possibility that the second stage of the phased VAT imposition, due in 1995, will be scrapped. Under Mr Lamont's proposals, on which legislation has already been passed, VAT will be levied at 8 per cent next year, rising to the standard rate of 17.5 per cent the following year.

In today's Independent on Sunday/NOP poll of the Christchurch by-election, VAT on fuel was cited by 43 per cent of those who are deserting the Conservative party as the reason influencing their defection.

The plan was designed to postpone revenue raising until the economy had pulled through from recession. But many strategists believe the policy has proved disastrous, giving Labour the lengthy period of its two-stage implementation in which to attack the Government.

Treasury ministers have made no decisions ahead of November's Budget. However some ministers believe that, providing economic recovery is sustained and the public spending round is controlled successfully, Kenneth Clarke, the new Chancellor, will have sufficient flexibility to abandon the second stage of the increase.

Mr Clarke may be attracted to a solution which creates the precedent that some goods are permanently taxed at different rates with no move to the full VAT rate. This would not create administrative complications, as fuel bills are completely separate from other spending.

Other ministers prefer a policy which would compensate potential losers, particularly those who are just over the income support level, through grants to insulate their homes. Meanwhile the Department of the Environment is concerned that if the VAT on heating and fuel is not imposed as planned, Britain will not be able to meet agreed international targets for the control of carbon dioxide emissions. The department believes that it would be possible, but more difficult, to satisfy the demands with the reduced consumption anticipated through imposing an 8 per cent rate.

The party conference in Blackpool could prove a difficult test for John Major, even though the choice of motions to be discussed is left in the hands of the party hierachy. There are also resolutions critical of the party's presentation of policy and over Europe.

Last year the Brighton conference exploded in an extraordinary display of disunity over Europe, with Lord Tebbit, the former party chairman, making an impassioned speech against the Maastricht treaty from the floor.