The Conservative Party in Blackpool: Clarke prepares way for tax rises: Chancellor ignores doubters and insists cut in spending is not enough

KENNETH CLARKE, the Chancellor, yesterday recalled the track record of Baroness Thatcher as cover for possible tax increases in his November Budget.

Unsettling representatives who appealed to him during an economy debate not to raise taxes, Mr Clarke said the Government had to get back to sound public finance.

'As Margaret Thatcher discovered in her courageous Budget of 1981, when the first priority is to balance the books, tight control over public spending is not always enough. The key question for me to decide, not now, but in November in the Budget, is whether we have done enough.

'No Conservative chancellor raises taxation unless it is absolutely vital for the good of the country. And make no mistake, the tax increases Norman Lamont announced last March were absolutely vital.'

Mr Lamont himself told a fringe meeting that his last Budget, containing more than pounds 10bn in tax increases phased in over three years, would raise 12.5 per cent more than the 1981 Budget increases - though he attributed the latter to Lord Howe, not Lady Thatcher.

Mr Clarke joined in the ministerial support for the Prime Minister, crediting him with winning the last election almost single handedly. 'Any enemy of John Major is an enemy of mine. Any enemy of John Major is an enemy of the Conservative Party.'

No one would say it had been a good year for the party, he said. 'Blood, sweat and tears would be an understatement. Frankly none of us will forget it for a very long time.' It was precisely at such times that the enduring strengths of the party had to be asserted, he said - 'clarity of purpose, unifying principles, self-discipline'.

Mr Clarke said that just as Britain had been among the first countries in Europe to emerge from recession, so it must lead in cutting government borrowing. 'As a Conservative chancellor I cannot accept that a government should be borrowing pounds 1 for every pounds 6 that it spends. Interest payments on the national debt are the fastest rising of all the Government's spending programmes. That is your money buying nothing. No hospitals, no schools, no roads.'

His first instinct and first duty as Chancellor when tackling borrowing was to rein back public spending, and that was what he and Michael Portillo, the Chief Secretary, were doing, Mr Clarke told the conference. The limits set for next year's public spending were the tightest he could remember in 14 years as a minister. They amounted to a freeze, and he appealed for support in the tough decisions ahead.

'We mustn't be under any illusions about what a freeze in public spending means. If we are to deliver our promises on health care, higher education, pensions and law and order we will have to cut back hard on other spending programmes. Some of those savings will be painful.'

Mr Clarke said he understood the concern about VAT on domestic fuel. 'As a party we need to do better if we are to convince the public why that decision was the right decision and why we must carry it through.'

VAT would raise nearly pounds 3bn in a full year, with two-thirds of the money coming from households with incomes of pounds 12,000 a year or more. Even with VAT, gas prices would still be at the same level in real terms as five years ago. He repeated the promise that extra help for 'the poorest members of the community' would arrive before the first bills next April. 'That help will go to many millions of households. No sensible person should condemn the tax before they have even seen our package of help for those least able to pay.'

Opening the debate, Charles Latham, leader of Southend council, urged Mr Clarke to look carefully at the decision to impose VAT at the full 17.5 per cent in 1995. Andrew Turner, prospective Euro-candidate for Birmingham East, emphasised the importance of the support package.

But despite the rash of motions opposing VAT on fuel - none of them selected - the anger did not emerge in the debate. Tax increases roused more passion. Andrew Mikenna, of Manchester, was booed when he called for 'a slight increase' in direct taxation to help reduce the spending deficit.

More representative was Nick Gibb, of Stoke-on-Trent, who said it was 'vitally important' for the party to maintain its position as the party of low taxation. People paid less income tax in successful economies, he said. In Japan the average tax and insurance on a pounds 20,000 salary was pounds 3,400, in Germany and the United States pounds 3,700 but in Britain pounds 5,200.

(Photograph omitted)