Tories demand tax cut lifeline: Defiant Major steps out into Downing Street garden to promise big reshuffle next month in wake of European election disaster

JOHN MAJOR yesterday held out the prospect of a wide-ranging Cabinet reshuffle next month as ministerial pressure mounted on him to bring forward tax cuts in the wake of the Tories' worst electoral performance this century.

The Prime Minister confronted his critics with a warning that he stood ready to 'beat' any challenge to his leadership and that he would 'stick to' existing policies despite a European election defeat which left the Tories with just 27.8 per cent of the popular vote.

Mr Major, who confirmed yesterday that there would be a reshuffle 'not this week, not next week, but not never', has told close colleagues that it will be more than 'mere tinkering' - implying the dismissal as well as the transfer of some Cabinet

ministers.

His firm declaration that he intended to fight the next general election as party leader, and on existing policies, came amid signs of an imminent and intense debate within the party over the desirability of early tax cuts to win back the support of defecting voters. Some ministers are expected to press for the Chancellor, Kenneth Clarke, to reconsider the second-stage increase in VAT on domestic fuel to 17.5 per cent next April, partly on the grounds that the gathering recovery will make the pounds 2bn revenue gain from the rise less necessary.

In a marked departure of style, Mr Major chose to give his first public reaction to the Tories' drubbing in the European Parliament elections in the garden at No 10 Downing Street at what he said would be the first of a series of ad hoc and on-the-record press conferences for political reporters.

His move came as a jubilant Labour Party celebrated gains in Essex, Suffolk, Norfolk, Hertfordshire and Kent which Jack Cunningham, Labour's shadow Foreign Secretary, said were a 'watershed'. He added: 'Labour has won in areas where we haven't been successful since the 1960s and in some cases even farther back than that.'

After clear hints of pre-general election tax cuts from Sir Norman Fowler, the Tory party chairman, following last week's by-election defeats, Mr Major reaffirmed he would 'rather let people decide for themselves how to spend their money than we should decide on their behalf.'

But he was guarded on the timing, adding: 'If and when it is prudent to cut taxes in the future, our instinct will be to cut them.' He was echoed last night on Channel 4 News by Mr Clarke, who said: 'Taxation will come down when we can afford to lower taxation.'

But in the most significant reaction to the election results from the right wing of the Cabinet, John Redwood, Secretary of State for Wales, acknowledged that Labour had had a 'good night' and that its policy of criticising the Government had 'paid off in the short term'.

Mr Redwood added: 'The Government needs to listen. People want a continuing recovery, which we intend to deliver and they want lower taxes which only the Conservatives wish to deliver when circumstances allow.'

Although Mr Redwood's reaction scrupulously conformed with the letter of government policy, it will strike a chord with senior backbenchers such as Sir Marcus Fox, chairman of the 1922 Committee, who also stressed the importance of tax cuts, adding: 'Let me just make this absolutely clear. John Major is our Prime Minister and he will remain so.'

Asked if he foresaw a leadership challenge, Mr Major said: 'I am still here. We have a mechanism if people wish to challenge in the autumn - that's a matter for them. I don't expect one. I will be here waiting for it if there is one. I will beat it and I will be here through the general election.'

Some advisers are urging Mr Major to appoint Michael Heseltine as chairman in the reshuffle - a move designed to raise party morale and make it more difficult for the President of the Board of Trade to remain a potential contender for the leadership.

The Liberal Democrats declared themselves highly satisfied with winning their first two European seats - in Somerset and Cornwall - and Paddy Ashdown, the Liberal Democrat leader, in an Independent article today, affirms that 'the electorate remains stubbornly three-dimensional'.

The one setback to an otherwise resounding victory for Labour yesterday was the capture by the Scottish Nationalist Party of the seat for North East Scotland. The SNP secured a record share of 33 per cent of the Scottish vote. And in another significant result John Hume, the Social and Democratic and Labour Party candidate, saw his vote rise in the three member Northern Ireland seat from 136,000 to almost 162,000 almost overtaking Ian Paisley, the Demcratic Unionist Party MEP.

(Photograph omitted)