Clarke remains cautious on tax cuts

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CLARKE yesterday warned the Cabinet that a revised forecast of 2.75 per cent growth in 1995 did not alter his determination that future tax cuts still depended on further reductions in public spending.

The Chancellor told colleagues that the Treasury now expects growth to be faster than the 2.5 per cent figure forecast in November - and that the underlying rate of inflation is likely to be around 2.5 per cent at the end of 1994 compared with the previous official prediction of 3.25 per cent. But social security and local authority spending are in the front line for cuts after the Chancellor combined his upbeat assesment of the economy with a firm message that future tax cuts would depend on undershooting the pounds 263bn spending ceiling agreed yesterday.

And while the better-than- expected inflation figures will help to reduce spending for uprated benefits, Mr Clarke went out of his way to warn colleagues that there would be no 'easy pickings' for spending departments. He told them the spending round would be 'very tough' and 'extremely challenging'.

A big Whitehall battle looms on defence with Malcolm Rifkind determined to resist further cuts in the armed forces budget after the current round of deep reductions in spending on support and administrative services.

In yet another sign of the backbench support lining up behind Mr Rifkind, Julian Brazier, MP for Canterbury, said in the Commons: 'At a time when our regular armed forces are facing yet another round of reductions, many of us are deeply concerned that we may also be looking at further cuts in the Territorial Army.'

Mr Brazier warned that the last two conflicts involving Britain, the Falklands and the Gulf, had 'come from nowhere' and that Britain could not afford to reduce its front-line capability.