The Budget: Clarke's soft shoe shuffle unites party over tax rises

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THE CHANCELLOR's politically skilful 'no nonsense' Budget united the Tory party and established his reputation among MPs as tough and prudent.

Kenneth Clarke pleased the right by cutting public spending and raising taxes below the range of most forecasts, while avoiding a widely expected extension of value-added tax. He also went a long way towards defusing a potential winter backbench revolt by announcing larger than expected compensation to offset the imposition of VAT on fuel.

Mr Clarke's decision to freeze tax allowances for the second consecutive year was admitted by one former Cabinet minister to be 'putting up income tax without putting up income tax'.

But a meeting of backbenchers last night suppressed serious private doubts about the impact on middle-class Tory voters of the reduction in mortage relief, the increase in petrol tax, and freezing of allowances, to give Mr Clarke a uniformly enthusiastic reception.

There were worries among senior Tory MPs that the spending cuts - partially offset by increases in the health and education budgets - could cause trouble. It was noted that cuts hitting housing and roads particularly hard did little for the stagnant construction industry. But one senior 'one nation' former minister insisted: 'It is politically manageable.'

And last night's meeting with Mr Clarke particularly welcomed the VAT compensation package for all pensioners, the new 'granny bond' designed to protect savings from falling interest rates, and the package of help for small businesses. Tory MPs were also quick to note that the Chancellor's plans for borrowing leave open the prospect of pre-election tax cuts.

Mr Clarke delivered his 75-minute speech in characteristically confident and robust style, pausing only occasionally to take a sip from the traditional glass of Highland Park whisky on the dispatch box. He opened his first Budget speech - and the first ever to have combined both spending and tax measures - by saying he felt like a 'lion tamer trying out his act for the first time'. With a conjuror's flourish, he delighted Tory backbenchers by leaving almost to the end his announcement that he would not be extending the VAT base this year. To the waving of order papers from the Tory benches, he concluded: 'Above all it is the Budget of a responsible government which is determined to bring lasting recovery to Britain.' But while the Chancellor insisted that the Budget reflected the 'carefully chosen priorities of an enlightened and responsible government', John Smith, the Labour leader, said that it was 'odious in the extreme' and warned that transferring sick pay costs from the state to larger employers and cutting jobless benefit eligibility was a 'vicious assault on the welfare state.'

Mr Smith added that the two successive allowance freezes were a 'devious' way of increasing income tax. 'They wriggle in all sorts of ways to try and increase income tax without the public detecting they are putting up income tax,' he added.

Labour said that the increase in taxes from Mr Clarke's Budget and Norman Lamont's one in March would mean a typical family paying an extra pounds 9.32 a week from April and pounds 16.01from April 1995.

Alan Beith, the Liberal Democrat Treasury spokesman, called the Budget 'son of Norman with a vengeance' and added: 'I have never seen so many Tory MPs cheering so many tax rises so loudly.'

But the warm reception from the Tory right was barely dented by acknowledgements from senior backbenchers that part of the reduction in the next three years' spending totals had been deftly achieved by raiding the contingency reserve by pounds 6.5bn over the next two years by a European Union requirement to bring forward a pounds 1.3bn contribution from next year to this one, and by lower than expected levels of inflation.

The right-wing welcome was underlined by Mr Clarke's predecessor. Mr Lamont - appearing in the role of television commentator - said the balance of the Budget was 'exactly what I would have hoped.' The former Chancellor added that the balance had been achieved by 'restraint on public spending rather than deep cuts.'