Clarke under pressure to deliver votes

Senior Tory backbenchers will put pressure on the Chancellor today to increase mortgage tax relief for home-owners as the Cabinet meets to maintain the squeeze on public expenditure.

The executive of the 1922 Committee of Tory MPs will throw its weight behind the demands led by Baroness Thatcher for the value of mortgage tax relief to be restored as part of a strategy for winning back disillusioned Tory voters with a return to core policies.

They want special help for first-time buyers in a package of proposals to be sent to the Prime Minister after being approved by backbenchers tonight. It includes demands for tougher measures on law and order, and a return to the Government's tax cutting priorities.

A committee of Tory backbenchers found widespread concern within the party at the damage done to the Government's support by cuts in the mortgage tax relief from 25 per cent to 15 per cent. Officers of the 1922 Committee will tell the Prime Minister that reviving the housing market is emerging as one of the priorities for action among party rank and file.

Mr Major will lose more support if he fails to respond to their demands, but the Chancellor has made it clear he will resist the pressure for a reversal of his policy on mortgage tax relief.

Kenneth Clarke is sceptical about ways of helping homeowners who have found their mortgages are higher than the value of their homes. He is not prepared to adopt "quick fixes", Whitehall sources said.

Downing Street cast doubt on the accuracy of Department of Environment figures showing that the number of households suffering negative equity had risen by almost one-third to nearly 900,000 in the first quarter of this year.

But the backbench MPs believe help for home-buyers is vital to establish confidence in the Government and rekindle hope of a "feel-good" factor before the general election.

Mr Clarke will tell the Cabinet this morning, when it carries out its annual pre- Budget review of spending, that he will expect support for a continued squeeze on public sector expenditure from ministerial colleagues and the backbench critics calling for tax cuts in his November Budget. The spending ceiling planned a year ago for 1996-97 is pounds 263.5bn, 41.75 per cent of GDP.

That amounts to an increase of pounds 8bn or 0.5 per cent growth in real terms. It is unlikely the Treasury will seek to lower the ceiling, but additional bids made by ministers to Jonathan Aitken, the Chief Secretary to the Treasury, will mean cuts in programmes.

The Treasury is seeking further cuts in the roads budget by Brian Mawhinney, Secretary of State for Transport. Mr Aitken is resisting a bid for an increase in spending by John Gummer, Secretary of State for the Environment, to implement a housing white paper, which will propose grants to tenants of housing associations to buy their homes at market values.

The right-wing's prime target for cuts, the social security budget, is being squeezed by Peter Lilley, the Secretary of State, but ministers fear deeper cuts would prove more electorally damaging. Other areas, such as defence, have already delivered cuts, and to go further would invite a backbench rebellion.

Gillian Shepherd, the Education Secretary, is arguing for an increase of up to pounds 1bn to pay for the commitment to avoid any repeat of the threat of teacher redundancies, and to introduce a nursery school voucher scheme.

Virginia Bottomley's health budget is protected by a manifesto pledge to increase spending on the NHS in real terms each year. Michael Howard, the Home Secretary, is seeking to underpin the Government's law and order pledges with more money for police.

Mr Clarke will lay it on the line to the potential rebels that they cannot have tax cuts without cutting public expenditure. Public sector pay increases will have to be paid out of productivity gains, threatening renewed tension with the unions, as the election draws nearer.