Heseltine warns against rate cuts: Tories told not to lose their nerve

MICHAEL HESELTINE yesterday warned the Government against an inflationary boost to the economy to lift John Major and the Tory party out of the doldrums.

The intervention by the President of the Board of Trade will be seen as a shot across the bows of Tory colleagues who have been demanding a further cut in interest rates to offset the tax increases before they hit Tory support in April.

Warning colleagues 'don't lose our nerve', Mr Heseltine said on BBC Television: 'I think that the economic factors today facing the British economy are about as encouraging as I can ever remember, providing we don't do what has happened, time and again, since the war, when the currency has been devalued, which is to let inflation overrun our expectations.'

The pressure for interest rates cuts is likely to be heightened by the Bank of England inflation report tomorrow. Although inflation rose from 1.4 per cent to 1.9 per cent in December as a result of indirect tax increases, it will show the underlying rate of inflation is 'comfortably within the Government's target range', Eddie George, Governor of the Bank, said on LWT's Walden Programme.

Mr Heseltine was rallying round John Major's leadership, after further buffeting over weekend reports that Mr Major would not resign in spite of expected Tory defeats in the local elections in May and the European elections in June. Mr Heseltine said: 'I don't know of a political leader who has not gone through this sort of crisis in mid-term.'

John Smith, the Labour leader, launched his party's European and local government campaigns in Glasgow by emphasising Labour's economic competence. 'We have one simple message for the British people - Britain will be better off with Labour,' Mr Smith said.

According to a Gallup poll in today's Daily Telegraph, Mr Smith is rated higher than any Labour leader in opposition for decades. The proportion of voters considering him a good Labour leader has exceeded 50 per cent three times in the past four months. During Neil Kinnock's eight-year tenure his rating reached 50 per cent only once.

But Bryan Gould, a former Shadow Cabinet member, said Labour had abandoned socialism. 'We have given up supporting the interests of the workers and for peculiar reasons we have sided with the wealthy. I want to see us swap back,' he said.

Labour leaders were accused of 'shying away' from financial reforms to local government in a report by the Fabian Society.

It urges Labour to adopt local taxation, including a local sales tax, a tourist tax and a tax on dog ownership.

Beyond the Town Hall; Fabian Society, 11 Dartmouth Street, London SW1 9BN; pounds 3.50.