Cabinet battle looms over widened VAT

THE CABINET will endorse the first of the swingeing cuts in public expenditure today amid a Cabinet battle over whether VAT should be widened to compensate for falling tax revenues.

Michael Howard, Secretary of State for the Environment, has lined up with other senior colleagues opposing demands by Michael Heseltine, President of the Board of Trade, and Kenneth Clarke, the Home Secretary, for the 17.5 per cent VAT base to be widened to items such as newspapers.

Thatcherite ministers warn that there would be a more damaging revolt if the Cabinet reneged on the Thatcherite principle of reducing taxation. However, VAT was almost doubled in the post- election budget in Baroness Thatcher's first term of office.

The cuts will mean that householders will be facing council tax bills estimated to average pounds 500- pounds 600 per household next April. Mr Howard has failed to secure his bid for an extra pounds 2bn to soften the introduction of the tax. He will use capping on council spending to limit the bills, but that will mean further cuts.

He has prepared colleagues for the worst by warning that it will be 'tough'. But some senior ministers believe the pain caused by the cuts which the Cabinet will be considering today will relieve some of the pressure on the Government over Maastricht.

'It could be helpful, because it will concentrate people's minds on the economy,' one Cabinet minister said. A Government source said the Cabinet would be facing 'a relatively narrow group of options' when it hears the first of the reports from the special Cabinet committee, known as EDX, which has been reviewing the cuts to keep public spending to the pounds 244.5bn ceiling next year.

Michael Portillo, Chief Secretary to the Treasury, is expected to give two further reports to the Cabinet before the Chancellor's Autumn Statement on 12 November. The aim is to secure the united support of the Cabinet before announcing the cuts, which will range across most Whitehall departments.