Clarke warns right on welfare budget

PAUL WALLACE and

DONALD MACINTYRE

Kenneth Clarke yesterday warned the Tory right that "overnight" slashing of the social security budget could lead to "social disruption" along the lines of the recent riots in France.

The Chancellor pulled out the stops yesterday to scotch the growing perception at Westminster that a dangerous rift had opened up between him and John Major over social policy.

But while allies of Mr Clarke were at pains to emphasise that the speech was a "mainstream Tory" statement of policy goals, his impassioned defence of a modern welfare state as a key foundation of an enterprise economy will be seen as a strong reassertion of "One Nation" Toryism.

Mr Clarke said that social security reform was a lengthy process and added: "You cannot expect to get to grips with a burgeoning social security bill overnight. The recent events in France, riots on the streets of Paris, illustrate the social disruption which social reforms can bring."

A key reason for the reports of divisions between the Chancellor and the Prime Minister arose from the scepticism Mr Clarke recently appeared to have expressed about the feasibility of cutting public spending as a proportion of GDP to below 40 per cent.

In an interview with the Financial Times last week, Mr Clarke said he thought this was the maximum that should be aimed for, adding that he would be "very surprised if you got a developed Western economy much below 40 per cent". By contrast, Mr Major and William Waldegrave, the Chief Secretary to the Treasury, have said they would ideally like to get the ratio down to 35 per cent.

As both the Treasury and Downing Street went out of their way to emphasise the harmony between Mr Clarke and the Prime Minister, the Chancellor said that he expected to reach the "extremely important milestone" of getting public spending below 40 per cent of national income by the 1997/98 financial year.

"The Prime Minister and I have both said in remarkably similar words that we will achieve that target and we have both said we will then aspire to reduce it further."

However, according to the Treasury's projections, public spending will still be 39 per cent in the financial year 1998/99. Furthermore, the planned reduction below 40 per cent by 1997 has been helped by a redefinition of public expenditure that excludes lottery-financed spending and treats interest payments in a way that flatters the total.

The key theme of Mr Clarke's speech was that the goals of a low-tax, enterprise economy and a high-quality welfare state were both compatible and, indeed, were mutually reinforcing.

"I believe that we can have modern public services and at the same time be a low tax economy," the Chancellor said.