Written on 12 July, eight days before Mr Portillo was promoted from Chief Secretary to the Treasury to Employment Secretary, the letter exposes an ideological divide between two Cabinet big-hitters.
The inquiry into the leak of the letter to the Guardian will focus on both the Department of Trade and Industry and the Treasury.
The disclosure of the scale of disagreement between the Cabinet's leading free marketeer and the more interventionist Mr Heseltine sparked a furious debate about regional assistance - one of seven DTI activities targeted by Mr Portillo. Industrial commentators warned that without it Britain could not compete for investment against Japan, the United States and the rest of Europe. The letter called on Mr Heseltine to scrap further DTI initiatives as part of the ongoing Fundamental Spending Review.
Castigating the DTI's response to the call for savings, the letter said: 'Nowhere in your department's report is it suggested that the best help we can give to business is to get taxes down or control public spending. Nowhere is the assumption that it is government's proper task to intervene in the functioning of free markets actually questioned.'
Mr Portillo issued a statement saying: 'The purpose of the fundamental expenditure reviews . . . is to examine thoroughly every budget . . . Discussions between spending departments and the Treasury do not imply decisions of government but a healthy and appropriate debate about the proper role of government.'
John Major, on a visit to Warsaw, said last night: 'The difference between examining matters and making decisions is very wide and can be understood by everyone.'
But Labour seized on the letter's 'political dogma' as evidence of a government in disarray. Robin Cook, shadow Trade and Industry Secretary, said: 'We need to know first who cracks the whip on industrial policy.' The cuts would spell the end of programmes that boosted British industry, he said.
Ideological divide, page 2
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