The Conservatives in Blackpool: Clarke faces intense scrutiny: The Chancellor is coming under pressure from several sources. Donald Macintyre reports

A LESSER politician than Kenneth Clarke would be daunted by the circumstances in which he has to make his first party conference speech as Chancellor today. Baroness Thatcher will be on the platform listening to every word; almost as soon as he sits down his predecessor Norman Lamont will deliver a fringe speech insisting, in direct opposition to Mr Clarke, that deeper spending cuts, and not tax increases, are the way to take further action to curb the deficit.

Both the Malcolm Rifkind, Secretary of State for Defence, and Peter Lilley, the Secretary of State for Social Services, are digging in against arbitrary cuts in their budgets, while the roads programme seems a certain victim of spending cuts. Mr Rifkind is said to be refusing any further cuts unless there is a full-scale defence review.

Mr Clarke knows, however, that a minority of his Cabinet colleagues agree with Mr Lamont, although all signed up last year to a public spending ceiling of pounds 253bn for 1994-95, which was freely acknowledged at the time to be much tougher than this year's target.

Finally, but not least, scrutiny of the speech will be more intense for the simple reason that Mr Clarke remains the most plausible candidate to take over from John Major.

The irony is that Mr Clarke's chief lieutenant, Michael Portillo, who stands side by side with him in the battle to force spending departments to keep their budgets below agreed spending totals, is the very man Mr Clarke's opponents on the right would back against him in a leadership contest.

Mr Clarke has a good working relationship with Mr Portillo and believes the Chief Secretary has behaved impeccably. The two are on different wings of the party but Mr Portillo has continued loyally to toe the party line. Indeed he has skilfully reinforced his right-wing credentials without breaking ranks, by giving out two compatible but separate messages at once.

Yesterday he repeated that tax rises in the next Budget may be necessary; but he has continued to make it clear that his long-term goal is the shrinkage of the state. The much touted 'dream ticket' of Clarke/Portillo in the event of a leadership contest should not be taken too seriously. Under this scenario Mr Portillo would deliver the right in return for the Chancellorship. In fact the right would almost certainly stand against Mr Clarke.

Senior Cabinet ministers would probably seek initially to agree a candidate, but if they could not do so, both Mr Portillo and Michael Howard are possible runners. Mr Howard went a long way yesterday to reinforcing his claim to candidacy in any contest; but there are still doubts, possibly unfair ones, on the hard right about the depth of his Thatcherite convictions. So Mr Portillo remains the likeliest favourite of the Thatcherite rump, and by all accounts of Lady Thatcher herself.

But Mr Portillo's chances of winning any contest against Mr Clarke are scarcely improved by it taking place this year or next. Some of his supporters insist he could get to the top before the general election if Mr Major goes.

He is only 40 and has never run a department. Indeed hawkish views on spending and the state fit more easily with a Treasury job; it will be interesting to see Mr Portillo's put to the test in a high spending department. So the betting is that his best chances are to play it long - which is an important reason why even the most vocal of Mr Major's critics have wanted this week to offer continued support to the Prime Minister.

The plain fact is that for many on the right Mr Clarke remains an unpalatable prospect, and indeed if there was a crisis they might yet attempt to draft in Douglas Hurd.

Mr Clarke now expects some of those right-wing backbenchers and newspapers who have given Mr Major such a mauling during the summer to turn the heat on him. He said in an interview published this week that political journalists would build someone up for about six months and then reduce them.

He has no wish to give in to pressure to reverse plans for VAT on fuel. He is expected to confirm today that there is a package on the way to alleviate the impact not only for the very poor but probably for the elderly with earnings just above income support level.

He will not, of course, announce the Budget details. Against this politically volatile background the wording of his speech could hardly be more sensitive.

(Photograph omitted)

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