Senior Tories warn against Budget tax increases: Executive of 1922 Committee urges Lamont to postpone moves to widen VAT until December

THE CHANCELLOR was urged by the most senior backbenchers in the Conservative Party last night not to raise taxes in the spring Budget.

Norman Lamont, who is known to favour extending the base for Value Added Tax to zero-rated goods, was advised by the executive of the 1922 Committee to delay any tax increases until the second Budget in December.

The MPs gave Mr Lamont their support for reducing the pounds 44bn public sector borrowing requirement, but expressed fears that tax increases would stifle recovery before it had started.

There were reports that Mr Lamont had told the executive that the recovery was fragile, 'if there is a recovery. . .'. But this was discounted by some senior Tories who attended the meeting.

However, in spite of the executive's opposition to tax increases, the Conservative Party is split on the issue. Some of the Chancellor's colleagues, who have been taking soundings, said: 'More than half the party would support an increase in indirect taxation.'

Support for indirect tax increases goes across the party, from Thatcherite ministers to those on the left of the party. Some, including Bill Walker, a right-wing backbencher, have gone further by calling for all levels of income tax to be raised for a limited period.

Mr Lamont firmly ruled out the option of raising direct taxation at one of a series of meetings he has been holding with Tory MPs. He told one Tory MP who suggested raising the 40 per cent top rate that it would be impossible, having won the election by attacking Labour for proposing to put up taxes.

Britain's larger-than-expected pounds 1.5bn trade deficit in December sparked sharp attacks from Labour and the Liberal Democrats yesterday on the Government's handling of the economy.

Margaret Beckett, Labour's deputy leader, said during Question Time in the Commons that the public was 'worried sick' about job losses and the economy and the only people who were not were the Government. Mrs Beckett said it was the worst monthly deficit for two and a half years. 'Despite a huge devaluation, exports this month (December) are down while imports continue to rise, which is unprecedented during a recession.

'We now have a payments deficit; a budget deficit; in London alone 400 people every day for the last three years have lost their jobs. The people of Britain are worried sick about this and the only people who are not are the Government.'

Tony Newton, Leader of the Commons, standing in for the absent Prime Minister, said recent trade figures had shown that for the first time in a long time Britain's world share of manufactures had 'stabilised' - an assertion which drew derisive laughter from the Opposition benches.

Mr Newton said inflation was at its lowest for six years, interest rates the lowest for 15 years, productivity at an all time high and all surveys showed increased business confidence. 'It is time the Opposition stopped trying to talk that confidence down again.'

But joining the attack, Paddy Ashdown asked: 'If things are so wonderful, can Mr Newton recall a time, any time, when any government presided over 3 million unemployed whilst borrowing pounds 1bn a week and whilst running up a trade deficit heading towards pounds 20bn a year?

'Is this not by any standards the mark of an economic policy that is floundering and a government that has failed?'