Major all-out for growth: Gatt breakdown increases fears for world economy

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JOHN MAJOR told the Cabinet and Commons yesterday that his new strategy for growth and jobs would go 'right to the centre of thinking in each and every aspect of government policy'.

The fresh instruction to ministers points up the complete priority now being given to the creation and generation of jobs and investment by every Whitehall department.

Mr Major said during Prime Minister's Question Time that the new policy - including further interest rate cuts when they could be made without pushing inflation above its current underlying rate of 4 per cent - had been made necessary by the 'darkened' prospects for the world economy.

Deep-seated government concern about the international economic climate was increased by yesterday's breakdown of the Brussels talks on the General Agreement on Tariffs and Trade (Gatt), jeopardising hopes of an estimated pounds 100bn boost to world trade.

Barely able to conceal his anger with President Francois Mitterrand, the Prime Minister told MPs yesterday that 'the majority of member states' would not share the reported view of the French Foreign Minister that there would be no serious Gatt discussions for several months - in breach of last week's unanimous Birmingham EC summit deal that conclusions should be reached within 10 weeks.

Delivering a performance and a message that buoyed the previously battered confidence of his backbenchers, Mr Major warned that the new strategy for growth would mean tough decisions on the current public spending round, which will conclude with the Chancellor's Autumn Statement on 12 November.

But the Prime Minister was cheered loudly by colleagues when he added: 'We must look with particular care at those elements of expenditure that have an employment, and particular growth potential.' He hinted at revival of infrastructure projects in which the private sector could assist.

Mr Major refused to speculate on specific projects like the Jubilee Underground Line, but some senior ministers said later that his plans for the private sector invasion of public sector territory were much more far-reaching and dramatic than realised.

That could signal a battle over Treasury objections to the release of some of the pounds 8bn council house sale receipts.

Given that the Cabinet was told the bare outline of the new strategy only on Monday, and that it was given more flesh at yesterday's Cabinet by Mr Major and Norman Lamont, the Chancellor - with Mr Major moving it centre-stage across the whole range of government policy - some capital spending projects that had been threatened in the current spending round could be saved.

While that prospect helped to dispel some of the gloom from the Tory benches, some senior MPs wondered why, if it was right to go for growth now, Mr Major had not enhanced his April election majority by going for it two years ago.

The Downing Street reply was that the 'bleak and bleaker' world economic scene had damped down any growth of exports that might otherwise have been expected to flow from the devaluation of sterling. One senior source said few realised the depths of the German economic plight, and that Italy's problems were so great that it might not 'hold together'.

Other Tory MPs warned that if the nurses, police and other public sector groups were to be forced to make sacrifices through pay restraint, to make room for more spending on capital projects, 'that could make the miners look like a picnic'.

In the Commons yesterday, Mr Major's new-found bullishness wrong-footed John Smith, the Labour leader, who concentrated on U-turns rather than the substance of policy changes.

But with Michael Heseltine, President of the Board of Trade, forced by the Commons backlash against pit closures to draw up a new energy policy within which some of the threatened 21 collieries will survive, Labour is planning to exploit perceived weakness and divisions on issues like public sector pay and expected cuts in overseas aid, in the hope of forcing further retreats.

Labour's biggest opportunity for exploiting Conservative difficulties was advanced yesterday with an announcement that the initial debate on the Maastricht treaty will take place in the Commons on 4 November. While some Tory MPs warned against an early return of the Maastricht legislation at a meeting of the backbench 1922 committee last night, Mr Major is determined to face down critics in the run-up to the Edinburgh summit on 11 December. The Bill is expected to go back to the House in the last week of November.

Party leaders were warned at the meeting that having repaired the damage over the miners, Mr Major risked splitting the party again by bringing the Bill back.

The British Chambers of Commerce yesterday backed Mr Major's commitment to protect public spending on big infrastructure projects after its latest quarterly survey indicated the economy has slid to the verge of slump.

The second largest employers' organisation warned that the domestic market had seen an 'alarming' contraction in orders. Unemployment had accelerated and, despite evidence of skill shortages, a growing number of companies planned to cut jobs.