Treasury minister confirms tax rise plans: VAT may be applied to private health

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The Independent Online
THE CHANCELLOR is planning tax increases to accelerate the repayment of public-sector debt and give the Tories a general election war chest, it was confirmed yesterday by Michael Portillo, the Chief Secretary to the Treasury.

Mr Portillo made it clear that Kenneth Clarke was determined to speed up the timetable for reducing public-sector debt which he inherited from Norman Lamont to give the Tories a chance of winning the next election.

Rumours are circulating Westminster that in his search for higher taxes, the Chancellor may apply VAT to private health and private education payments at 8 per cent to overcome the charge that he is being unfair to the poorest in society with VAT on domestic fuel. Mr Portillo failed to rule that out yesterday on Breakfast with Frost with Anna Ford.

Rejecting demands by the right wing to cut deeper into public spending, Mr Portillo said the Chancellor had set out figures for the next three years. They had been confirmed by the Cabinet in June, and the Budget had set out a three-year view of how the Government would raise taxes.

'That gives us a falling profile of public borrowing which is very important . . . When we come to the Budget in November, what Kenneth Clarke has to do is to review whether the public-spending constraints that we put in place and the tax increases that were announced in the last Budget are sufficient to bring down public borrowing as fast as he would like to,' he said.

Under Mr Lamont's plan, the public-sector borrowing requirement (PSBR) was due to be reduced progressively over the next five years from pounds 50bn to pounds 30bn in 1997/98. That would still mean the Tories going into the next election with an unprecedented level of public-sector debt, which would deny John Major any prospect of fighting the next election on plans to improve services and reduce taxes for the low paid.

Mr Lamont planned a PSBR of pounds 39bn in 1995-6 - probably the earliest Mr Major could go to the country - and pounds 35bn in 1996-7 at the end of his five-year term.

Mr Clarke is seeking to reduce the PSBR by the time of the election to levels on which Baroness Thatcher found it possible to win. After defeating Labour in 1979, she won the 1983 and 1987 elections with PSBRs of pounds 8.9bn and pounds 3.6bn. The PSBR was pounds 13.7bn when John Major led the Tories to victory in 1992.

Mr Portillo emphasised that the spending plans for future years implied a freeze in real terms. He said he expected the right wing who were stirring up trouble last week to support the Government when it came forward with some of the tough and unpopular decisions on spending cuts in the autumn.