The Prime Minister's worry that significant tax increases could put back the recovery appeared to be reflected by Sir Norman Fowler, the Tory party chairman, yesterday when he said it 'remained to be seen' whether tax increases would be necessary this year.
Norman Lamont is known to believe there are dangers in not making an early start on reducing a deficit which the Government estimates at pounds 44bn in the coming financial year, but which City analysts say could reach pounds 50bn.
Although some tax increases in the Budget are inevitable - Mr Lamont has to recoup the pounds 700m cost of abolishing car tax for example - the Treasury does not yet appear united on whether more significant tax hikes would damage the recovery.
Sir Norman yesterday went out of his way to stress the Government's claim to be the party of low taxation as he left for a meeting yesterday with the Prime Minister at Chequers to be followed by one today when the Downing Street policy unit joins Mr Major in a session aimed at reviving the Government's domestic agenda.
The meeting is expected to review progress on rail privatisation, look at measures for boosting the housing market, examine a scheme to get the long-term unemployed into subsidised work, and may put more urgency into examining how mortgage tax relief could be phased out to save the pounds 5bn a year it costs the Treasury in lost revenue.
One radical proposal would be to roll it forward for first-time buyers as a stimulus to the housing market. But while almost all senior politicians accept privately that mortgage tax relief should go, both Labour and the Tories have repeatedly shied away from the electoral costs of tackling it, and many Tory MPs would be worried at any move that might further damage the housing market.
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