Lamont twists knife over tax: Former Chancellor takes Clarke to task over need for further increases in Budget

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NORMAN LAMONT reopened Conservative divisions over tax and spending last night on the eve of the party conference by calling on Kenneth Clarke, his successor as Chancellor, not to increase taxes in the Budget.

That cuts directly across Mr Clarke's insistence on reserving the right to increase taxes. The former Chancellor argued there was no need for further tax increases after his decision to impose value-added tax on domestic fuel, which would raise pounds 6bn in the first year, and pounds 10bn in the second year.

Mr Lamont said he was sure that John Major would lead the party into the next general election, but added: 'If there have to be further adjustments made to reduce the deficit, they ought to be on spending.'

Mr Lamont's intervention came as it became clear that Conservative leaders want a new deal with the Thatcherites at the party conference in Blackpool next week to end the internecine war.

Michael Howard, the Home Secretary, will unveil a sweeping package of penal and criminal justice reforms which the Tory high command hopes will help to unite the conference. The proposals include ending the right to silence, imposing tougher penalties and locking away more child offenders In terms certain to be welcome to the vast majority of representatives Mr Howard will return to his theme that miscarriages of justice occur when the guilty are acquitted as well when the innocent are convicted.

Sir Norman Fowler, the party chairman, will make it clear at the opening of the conference that Mr Major's leadership has not broken from the Thatcher inheritance, a view echoed by Cabinet colleagues.

One senior Conservative source said: 'The psychological point people want to get around is that the vast majority were supporters of Margaret Thatcher and now they are supporters of John Major and there is no distinction between the two.'

Baroness Thatcher will be assured a warm welcome at the conference. She has agreed to hold a series of fund-raising dinners to boost party income, which plumeted from pounds 20m to pounds 7.8m last year.

But her supporters intend to make it clear that the price to be paid for peace in the party will be a reaffirmation of Thatcherite principles on tax and spending. They will tell Mr Major this weekend that the way to restore confidence in his leadership is to rule out increasing income tax in the Budget, which some on the left have been urging.

The strategy came to light as Downing Street admitted that there had been a further leakage of off-the- record remarks by Mr Major - this time about Mr Lamont. They were made on the fringes of an interview between Mr Major and the Sunday Express while it was being relayed to the Central Office of Information on a government network for transcribing. The remarks were said to have been 'wholly unremarkable.'

Last night, however, Mr Lamont insisted on Radio 4's Any Questions: 'I am sure that John Major will be Prime Minister at the next election.' And he said that Mr Major's European policy as outlined in his recent Economist article was one that the party as a whole could support. But he warned that the Prime Minister had to do more than just 'make a personal appeal' at next week's conference. He must 'indicate the way forward' and show that the Government was prepared to ' grasp the nettle' and take difficult decisions'.

He said an extension in the short term of VAT to other items would be 'out of the frying pan and into the fire'. The former Chancellor said he was in favour in principle of applying VAT on all items of spending, including food and children's clothes, but did not believe it would happen.

Conservative Way Forward, the Thatcherite group led by Lord Parkinson, a former party chairman, will tomorrow publish a pre-conference newsletter saying they hope Mr Major remains leader but call on him 'to say there is no increase in income tax'.

Party leaders expect a gruelling week, with protests over VAT on domestic fuel, and the threat to extend it to BR. But ministers, including Virginia Bottomley, seen as being on the left of the Cabinet, are preparing to emphasise their commitment to staying a 'low tax' party.