Clarke contradicts Major over cuts

An unrepentant Kenneth Clarke boldly flew the flag for One Nation Conservatism yesterday, arguing against dramatic cuts in public spending in contradiction of John Major's stated aim of further significant reductions.

Prominently displaying his pro-European colours, the Chancellor also spoke out against any manifesto commitment to a single-currency referendum, while conspicuously questioning the confident predictions of senior colleagues that the European Union was poised to postpone or abandon monetary union. In contrast to suggestions by Mr Major and Mr Clarke's departmental colleague, William Waldegrave, Chief Secretary to the Treasury, that public spending could be reduced from 42 per cent of national income to the far lower figure of 35 per cent in the longer term, the Chancellor declared, in a Financial Times interview published today, that he would be "surprised" at a figure much below the 40 per cent target in a developed Western economy.

His "personal judgement" was that shrinking spending to his own target of just below 40 per cent was "the maximum" that should be aimed at. In an interview at the weekend, the Prime Minister said that he would "certainly" like to get public spending down to 35 per cent - though he was not predicting that.

But Mr Clarke said: "In a society such as ours it is realistic to expect that as people get wealthier that they are going to want to spend more on things like health and education."

In a clear sign of continuing resistance to pressure for him to agree to a pre-election pledge to hold a referendum on joining a European single currency, the Chancellor said that he "personally would leave whether or not people want a referendum to the time if and when" monetary union comes about. Many Cabinet colleagues are pressing for such a promise from Mr Major as the best way of maintaining a united front in a party deeply divided over Europe.

As to suggestions that monetary union could be put on hold or dropped - to the delight of Tory Euro-sceptics - Mr Clarke declared: "I actually don't think anyone knows whether it will go ahead on 1 January 1999," adding that the Government should not get "wildly excited" about speculation on the start date. He also dismissed suggestions that other EU states wanted a relaxation of economic-divergence criteria for monetary union that would call for amendment of the Maastricht Treaty.

Suggestions by Mr Clarke's opponents - denied by Downing Street and the Treasury - that he has become isolated in Cabinet, have been fuelled by an apparent difference of emphasis between himself and Malcolm Rifkind, the Foreign Secretary, over monetary union. Mr Rifkind was quick to suggest there was a growing gulf between economic realities and the planned 1999 timetable.