Inside Parliament: Budget Aftermath: Portillo under fire over rising taxation: Brown's 'policy-free zone' derided - Government 'discipline' on public spending defended - Harman singled out for Joan Collins jibe

Michael Portillo, Chief Secretary to the Treasury, was involved in heated exchanges with the Labour leadership across the table of the House of Commons yesterday as tax dominated the Budget debate.

With opposition parties accusing the Government of 'the biggest tax hike in history', Mr Portillo said he believed the Chancellor's tough action on public spending would lead to lower taxes 'in due course'.

He insisted amid Labour jeers: 'This party does believe in low taxation.' Higher rates had a direct effect on incentives, driving wealth creators out of the economy.

Mr Portillo derided Gordon Brown, the shadow Chancellor, for making a 'policy-free zone' of a speech and of 'cowering in terror' rather than saying what he would do about tax and the pounds 50bn deficit.

'His predecessor in the job of shadow Chancellor (John Smith) devised an economic policy, and it was a disaster. It was the policy that cost the Labour Party the last election . . . The lesson is, if you devise a policy, if you blow the election for your party, you become the leader of your party.'

The jibe brought Mr Smith to the despatch box, challenging Mr Portillo to 'tell the House whether the Conservatives kept the promises they made at the last election?'

The Chief Secretary replied: 'We are keeping the most fundamental promise of all, and that is to deliver sound public finances.' The Conservatives were serious about dealing with the problem of pounds 50bn public sector borrowing requirement, in contrast to Labour.

The PSBR was one quarter of the United Kingdom's national debt of pounds 200bn. If the Chancellor had not taken steps to deal with the deficit there was a danger of 'doubling' the national debt in a short time.

'This Government is not a member of the escapist tendency. Despite my own ethnic origins, I am not one who is in favour of

manana.'

Mr Brown asked him to confirm that the typical family would have to pay almost pounds 10 a week more in taxes from April and said the minister should apologise for breaking election promises.

'I don't know what a typical family would be described as,' Mr Portillo said. It was not possible to reduce the deficit without there being some restrictions on spending and some increases in taxation.

'Different families pay different amounts. I am not disguising that people will be paying more in taxes.' As Deputy Speaker Geoffrey Lofthouse repeatedly tried to bring the two front benches to order, Mr Portillo said Mr Brown was not serious about the public finances. When Harriet Harman, the shadow Chief Secretary, shouted that he was not serious either, Mr Portillo reminded Ms Harman of her failure in the Shadow Cabinet elections. 'She is held inside the Shadow Cabinet by the safety net of political correctness.'

Mr Portillo specifically rejected suggestions that the Chancellor had raided Treasury reserves to cut the deficit, telling MPs that the pounds 3.5bn offset against the deficit would normally have been allocated to spending programmes.

'What we saw in operation was not smoke and mirrors, not fiddles. It was the resolution of the Cabinet and the Government and the exercise of an absolute discipline on public expenditure.'

Mr Brown said the Budget had broken 'any residual trust that even the most ardent Tory could have in this Government over taxation . . . Half a million new taxpayers are drawn into the income tax net . . . 95 per cent of households lose money as a result of the cumulative effects of the Budget.'

The Government had done nothing for fairness, jobs, industry or investment, he said. 'They are repeated offenders in the business of making and breaking promises. They went joy-riding with the British economy, crashed out of the exchange rate mechanism, and they have left a trail of chaos and destruction behind them.'

Earlier Peter Lilley, Secretary of State for Social Security, defended himself against the charge of wanting to shrink the welfare state. 'Nothing could be further from the truth. I believe those who are not prepared to reform cannot preserve the welfare state and cannot ensure that it's affordable into the next century.

'Because we have the courage to take the necessary decisions we are the true friends of welfare provision in this country.'

Mr Lilley confirmed a range of changes, including equal retirement at 65, the Jobseeker's allowance, reform of invalidity benefit and help for 15 million people with VAT on fuel. Spending on social security will be more than pounds 80bn this year and increase over three years to pounds 91.8bn.

'This is the largest increase of any department and demonstrates our commitment to the needy, the elderly and the sick.' Mr Lilley said he intended stopping 'abuses' including the payment of housing benefit on 'unnecessarily' expensive property and to people who entered Britain on the expressed understanding they would be no burden on public funds.

He was also bringing in rules to prevent employers avoiding National Insurance by paying their employees in commodities like gold bullion - an announcement Donald Dewar, Labour's social security spokesman, joked would earn the gratitude of his constituents in Glasgow Garscadden.

Mr Dewar claimed the Budget would take pounds 24bn out of the economy in higher taxes in just over three years and dismissed the VAT compensation scheme as 'a con'. 'The Chancellor's 50p will simply not meet the extra cost when the VAT bills roll in.'

Turning to the stricter test for incapacity benefit, Mr Dewar said he understood it would take the form of a points league table. Inability to pick up a book so as to read it would score 25 points, inability to push an unladen wheelbarrow only 4.5 points and inability to pick up and carry a 5lb bag of potatoes in either hand, 9.5 points.

'Objectivity sounds all very well. But if objectivity translates into a lack of sympathy, then there will be absolutely no public support for what I believe is, at the end of the day, a cost-cutting exercise.'