The public would "look sideways" at any pre-election tax cuts in his November Budget, the Chancellor said, a remark that will fuel demands on the Tory right for him to go.
Speaking in Washington last night, Mr Clarke insisted that the Government was only just able to resume its tax-cutting agenda as the economy recovered and he gave his strongest indication yet that he will not deliver the giveaway Budget that some members of his party would like to see.
"The public will need to see that any tax cuts are credible, can be afforded, are good for the economy and are going to last," he said.
Mr Clarke is facing the threat of a Euro-sceptic backlash over his earlier remarks on Europe, which he refused to recant earlier in the day on GMTV. He said: "It is not the case that my budget requires tax cuts in order to win the election.
"The public will be deeply suspicious of any tax cuts because they remember we promised tax cuts last time and unfortunately we weren't able to deliver them.
"They'll look twice, sideways at tax cuts from this government and they'll accept tax cuts only if they can see it fits in with a sensible strategy that's going to make them and their families better off for some years to come."
Labour's campaign spokesman, Brian Wilson, said: "This is an extraordinary admission by the Chancellor. He will certainly be taken at his word by the electorate. After five years of increasing taxes, the Tories will indeed attract deep suspicion and massive scepticism if Mr Clarke stands up on Budget day to announce tax cuts which would take effect a few weeks before the election."
The Chancellor also confirmed he is at odds with the Governor of the Bank of England, Eddie George, who wants to increase interest rates. Mr Clarke said: `We're only quarter of a per cent apart at the moment. Contrast that with the old days. I can remember chancellors bunging up interest rates 2 per cent at a time. And I make small adjustments, one way or the other, to keep the economy on course."
On Europe, Mr Clarke clashed with John Redwood, the right-wing former cabinet minister, by rejecting calls by Tory Euro-sceptics to block European progress towards economic and monetary union.
"It's completely ridiculous to suggest that Britain can stop them doing that. Britain is in the unique position where eventually our government will have the choice as to whether or not we're going to participate, but the idea that British policy can realistically be set to stop the others going ahead is complete nonsense. There is no means to do so."
In Washington, Mr Clarke refused to be drawn on whether he would consider resigning if cabinet Euro-sceptics swung Government policy against EMU. "As the Government continues to reaffirm its complete commitment to a policy I have been advocating, I don't think the question remotely arises," he said.
Lord Younger, former Cabinet minister and head of the Royal Bank of Scotland, backed the Chancellor in keeping open the option of going into a single European currency.Reuse content