Mr Davies came down firmly on the side of Mr Heseltine, President of the Board of Trade, in the embarrassing rift with Michael Portillo revealed by the leaked letter from the former Chief Secretary to the Treasury.
In a fresh twist to the conflict, the Treasury and the Department of Trade and Industry last night played down the significance of reports that Mr Heseltine had cut short spending review meetings earlier this year. He is understood to have complained that joint working group meetings were taking up too much time and to have excluded Treasury officials from final deliberations on his department's report in February. Such action could have exacerbated friction between the two ministers.
A DTI spokeswoman said last night: 'The review is continuing. Discussions are going on with the Treasury and will continue until the review is completed in the autumn. When it is completed it will go to EDX (the highpowered Cabinet spending committee) of which Mr Heseltine is a member, and thence to Cabinet.'
A Treasury spokesman said: 'The important thing is that the review is continuing. The DTI is carrying out their part, like all the other departments.'
Mr Davies, giving strong backing to DTI support for exports, said in a statement: 'Public spending should not be allowed to over- run and the pounds 5bn contingency reserve should be used to reduce borrowing not allocated to programmes. But those programmes which are in effect an investment in individual success should be well supported, and that includes support for exports.'
There were indications, however, of a conflict between business leaders opening up alongside the deep disagreement between the Cabinet's foremost free marketeer and the more interventionist Mr Heseltine.
The Institute of Directors lined up behind Mr Portillo, saying: 'Mr Portillo was doing his job and most directors support the view that the Government should be cutting expenditure in order to prepare for tax cuts.'
Little faith was being placed in the official inquiry into the leaking of the letter showing Mr Portillo castigating Mr Heseltine for failing to contemplate radical spending cuts as part of the Fundamental Expenditure Review.
Mr Davies added yesterday that there was 'solid research which shows that the benefit derived from government support for exports - particularly those of smaller firms in new markets - far outweighs the cost.
'It would be a great mistake to pull back on this government support for UK overseas trade.'
The CBI's Smaller Firms Council is also backing the continuation of DTI support programmes for smaller businesses.
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