Tory activists on the warpath over tax cuts

Kenneth Clarke, the Chancellor, last night faced an angry backlash from grassroots Tory supporters after making his most explicit warning so far that the hopes of tax cuts in his November Budget were not "safely in the bag".

The Conservative Party conference agenda published yesterday shows grassroots Tories are on the warpath over the tax increases and are demanding the restoration of mortgage interest relief and the married couple's allowance.

Mr Clarke's constituency, Rushcliffe, has joined calls for tax cuts and the Prime Minister's Huntingdon constituency calls for the abolition or cuts in inheritance tax. But the Chancellor was at pains to dampen expectations of tax cuts in the Budget. In an optimistic speech on the economy, he said he would not put steady growth or low inflation at risk by ``playing fast and loose with the public finances''.

In a warning aimed at departmental ministers near the end of the public expenditure round, Mr Clarke said lower taxes depended on controlling spending without damaging key public services. ``Nobody should assume that tax cuts are safely in the bag,'' he said.

"Of course the majority of the public always likes tax cuts, but the public only want tax cuts that will last," he told a conference.

The room for manoeuvre was reduced this week by borrowing figures showing that the Chancellor risks overshooting his target for the public sector borrowing requirement. That intensified the pressure on ministers to cut public expenditure.

About half of nearly 200 conference motions tabled on the economy call for cuts in taxes and many echo Labour criticism at the betrayal of Tory election promises. They underline the anger among Tory voters at the collapse in the housing market and demand action, although Mr Clarke has already ruled out measures to deal with negative equity.

Many constituencies want Mr Clarke to revive the market by restoring mortgage interest relief to 25 per cent. Some call for it to be raised from a ceiling of pounds 30,000 to cover mortgages up to pounds 50,000 or pounds 60,000.

The Chancellor, speaking in London to the Engineering Employers' Federation, warned that he would set monetary policy to hit the inflation target - 2.5 per cent, with a 1 per cent to 4 per cent comfort zone.

Caution on taxes, page 20