Major fears VAT defeat

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JOHN MAJOR faces possible defeat on a key section of the Budget as more Tory backbenchers threaten to rebel over the imposition of VAT on domestic fuel.

The Prime Minister will try this week to break the deadlock in the row over compensation, after senior members of the Conservative 1922 Committee warned the Chancellor, Kenneth Clarke, that the deeply unpopular change was straining MPs' loyalty. Ministers are increasingly convinced that the package will have to total at least pounds 500m to buy off a backbench revolt.

Andrew Bowden, MP for Brighton, Kemptown, and a leading advocate of compensation for pensioners, said he would seek to amend the Finance Bill if Mr Clarke does not offer pensioners sufficient cushioning. Ministers are currently wrangling over how far the package should be extended beyond income support into other areas such as Council Tax or housing benefits or the state old age pension.

Mr Bowden said: 'I support VAT on fuel but my proviso is that you have to look after those on the bottom income level. If this works out at less than 50p per pensioner I would seek the first opportunity to amend the legislation.'

He added that he would put down another early day motion on the subject after Parliament returns on 18 November. Eight Tory backbenchers supported his last motion in October. Gordon Brown, the shadow chancellor, named four likely rebels: Bill Cash (Stafford), Teresa Gorman (Billericay), Paul Marland (Gloucestershire West) and Phil Gallie (Ayr).

'Support for the Government's position is crumbling with desertion after desertion,' he insisted. 'The number of Tory MPs now prepared to say they will not support 17.5 per cent VAT on fuel puts the Government's majority at risk.'

Assuming that William Powell (Corby) and Nicholas Winterton (Macclesfield) continue to abstain on the taxation of gas and electricity, as they did when the measure was first introduced in March, the latest calculations bring Mr Major's majority down to a handful.

Opponents of VAT on fuel argue that many who are critical of the measure failed to rebel in the summer because they were opposing the Government on Maastricht. The support of the Ulster Unionists is not guaranteed since the VAT proposals have proved highly unpopular in Northern Ireland, where energy prices are comparatively high.

The political arithmetic is intensifying pressure on Mr Major, Mr Clarke and Peter Lilley, Secretary of State for Social Security, to reach agreement on the final shape of a compensation package for pensioners and those on state benefits. Ministers are believed to be considering a package worth between pounds 400m and pounds 670m.

The dispute has been complicated by speculation that Mr Clarke might impose the full 17.5 per cent of VAT at one go, rather than in two stages beginning at 8 per cent. Mr Lilley's department is still working on the assumption that the two- step approach will prevail.