The recession means that, on its own figures, the Government faces a pounds 44bn deficit, which the City believes could reach pounds 50bn. Many analysts believe action will be needed sooner rather than later. But Tory backbenchers are fearful that tax increases in March could further set back any recovery and damage the party.
There are also signs that John Major is resisting early increases. Last weekend, he said the deficit needed to be dealt with, but added: 'I think sometimes people overestimate the difficulty of dealing with it over the medium term.' Yesterday, in Conservative Newsline, the party's newspaper, he said: 'We will continue to keep taxation low.'
Judith Chaplin, the MP for Newbury who is a former adviser to Mr Major and a member of the Treasury select committee, said yesterday she would not wish to see anything that would damage the 'very fragile' recovery, which would itself reduce the deficit. 'The most important thing is to get the recovery,' she said.
But Lord Ridley, the former Cabinet minister, yesterday weighed in on the side of Lord Howe, the former Conservative Chancellor, who said on Thursday that 'sooner rather than later' was the right time to raise taxes. Lord Ridley told BBC Radio's World at One that he did not believe selective increases on the better off would harm recovery.
Kenneth Baker, the former party chairman, said he believed there would have to be some increase in taxation this year. But he said it should fall on spending, not income. 'The deficit is there and it has to be funded, and the realistic way is to face up to that and face up to it fairly early in the lifetime of a parliament,' he said.
David Shaw, vice-chairman of the Tory backbench finance committee, said the Chancellor should raise VAT by 2.5 percentage points to 20 per cent. But he said half the pounds 12bn raised should be used to reduce the deficit, and the other half to cut the standard 25p rate of income tax to 20p.
Income tax increases face strongest resistance, with VAT and excise duties the more likely target, possibly combined with higher employees' national insurance contributions in December. Growing backbench hostility to the press has put the imposition of VAT on newspapers, magazines and books in the frame.
Meanwhile, Mr Major will meet Norman Fowler, the party chairman, at Chequers tomorrow prior to a meeting with the No 10 policy unit on Monday aimed at breathing new life into the Government's domestic agenda.Reuse content