The Treasury is resisting pressure to pay full compensation for the imposition of VAT on domestic fuel to 10 million other people who receive income-related benefits, although a majority of Conservative backbenchers clearly want him to do so.
The row will put Norman Lamont, the Chancellor, under fresh pressure to say what level of compensation he will give the least well-off when he winds up the Budget debate tomorrow.
In the wake of his Budget, an Independent on Sunday survey of Conservative backbenchers shows that 52 out of 72 now want him to stay as Chancellor. Although 60 of the 132 MPs contacted refused to answer, the survey shows that backing for Mr Lamont has increased since a similar survey for this newspaper last October - a month after Britain left the Exchange Rate Mechanism.
Then, the majority against his resigning was three to two. The Prime Minister has kept open the option of a summer reshuffle, but some of Mr Lamont's ministerial supporters think he could remain Chancellor well into next year.
John MacGregor, the Secretary of State for Transport, with 15 votes, emerged as first choice in a scattered field of candidates to replace him. He was ahead of Michael Portillo (12), Michael Howard (10), Kenneth Clarke (8) and Peter Lilley (2). The figures suggest that right-wing support is divided between Mr Portillo and Mr Howard, despite Mr Portillo's having taken some of the blame for last week's messy presentation of the heating issue.
A survey in today's Sunday Times finds that three out of four backbenchers want pensioners and poor families to be fully compensated for the VAT rise. But earlier, asked if the Government was ready to pay anything like the pounds 800m to pounds 1bn which Labour estimates as the cost of full compensation, a senior source said: 'No.'
All pensioners except the very poorest face the delay because their pensions will not increase until a year after they start paying the higher costs. Pension upratings take place in April, and reflect the previous September's Retail Prices Index. Mr Lamont said in his Budget speech that 'social security benefits will, of course, rise automatically to reflect the price effect of this change.' Senior Treasury sources have now acknowledged that this would happen 'in time'.
In fact, those pensioners not receiving extra benefit - a group which includes many in low-income groups - will not be compensated fully until they have paid extra bills for two years.
At a Tory students' conference in London, Mr Portillo cited a 1990 Labour policy document, which said that zero-rating on such items as food, books, and children's clothing should stay. Mr Portillo asked: 'Does anyone spot the dog that doesn't bark in that sentence? There is no mention of fuel and power.'
Gordon Brown, the Shadow Chancellor, said the Budget had permanently stamped the Tories 'as the party if rising taxes, devaluation and economic failure.'
THE political parties exchanged insults yesterday over the Newbury by-election even before a date has been set.
The Tory candidate, Julian Davidson, was attacked by Labour after winning the nomination at the expense of a former Treasury minister, John Maples. Mr Davidson, 30, a consultant in design, printing and advertising, contested Paddy Ashdown's Yeovil seat at the general election and signalled his intention to 'nail those Liberal Democrats' in Newbury. A Somerset county councillor, he is to the right of Mr Maples on law-and-order issues.
Labour's campaign manager, Peter Mandelson, MP for Hartlepool, said he was 'amazed that the Tories have selected such an underqualified candidate'.
The by-election, caused by the death of Judith Chaplin, could be held on local election day, 6 May.
Leading article and Political
Commentary, page 22
Christopher Huhne, page 12