Inside Parliament: Chancellor bathes in rosy glow of recovery: Brown taunts Tories over role of Portillo - MP calls for crusade to cut waste - Attorney-General deflects questions about former aide

Kenneth Clarke yesterday tempered a rosy forecast for the British economy with an admission that after only three months of economic good news the public were understandably 'hesistant' about the recovery.

In an otherwise doubt-free performance, the Chancellor suggested that he too waited to be convinced by a longer run of consistently good economic statistics. 'I share the public's view,' he said.

The opening speeches by Mr Clarke and his Labour shadow, Gordon Brown, in the first Commons debate on the economy for seven months were, for the most part, political point scoring.

Mr Brown probably had the better of it, with the imminent Cabinet reshuffle offering an easy opportunity to exploit divisions between Mr Clarke and his deputy, Michael Portillo, the right- wing Chief Secretary to the Treasury.

The Chancellor was facing a 'huge dilemma', Mr Brown said. What would be the consequences of 'driving the last monetarist out of the Treasury temple'? Would he prefer to see Mr Portillo as a departmental head in a stronger position eventually to challenge him for the leadership or under his eye in the Treasury?

'The Chief Secretary, the last standard bearer of the new right inside the Treasury; the ghost of monetarism past, the still, small voice of Thatcherism; the insistent, insidious, whispering voice of the new right's agenda, forever one step behind the Chancellor whispering as he goes, hissing his own message.

'The Chancellor indeed has a dilemma. Would he prefer him inside the Treasury hissing out, or outside the Treasury hissing in?' MPs on both sides were much amused, but not Mr Portillo who was sitting next to the Chancellor.

With Tory Eurosceptics pressing both frontbenchers over their attitude to rejoing the exchange rate mechanism, Mr Brown said: 'The difference between the Tories and us is that we believe in the principle of managed exchange rates.

'We do not see the virtue of a free-floating exchange rate that is left to speculative forces to decide the fate of the economy.' He indicated that Labour would curb currency speculators as part of a long- term economy strategy aimed at getting more investment in industry and training.

Labour's Trappist-like approach to tax and spending plans left Mr Clarke with little choice but to attack his opponent for having no economic policy. The party was 'going through something of an identity crisis', he said.

'If the Labour Party no longer believes in socialism, surely it must believe it is still the party of higher public spending? . . . What has Labour and the trade union movement been reduced to if it now cringes in shame at the very suggestion it wishes to increase public expenditure to ministers who served in a government under Lady Thatcher?'

The Chancellor said Britain was now 'poised for success' with steady growth, falling unemployment, rising productivity and low inflation. If the Government stuck to its strategy, it should be possible to deliver increased prosperity and jobs over the next few year. He repeated the intention to lower taxes, 'but only when it is prudent to do so'.

While Mr Clarke seems reshuffle proof for the time being, the same cannot be said of Alan Beith, the Liberal Democrats long-serving economics spokesman, who has been tipped for a move when Paddy Ashdown reorganises his team.

Mr Beith accused the Chancellor of 'staggering complacency'. His speech 'was the equivalent of the Italian fans getting out a champagne bottle with the score still at nil-nil - and there's more than a penalty shoot-out to come on the British economy'.

While welcoming the apparent growth in the economy, Mr Beith said it was based on consumption rather than investment. 'The risk is there of inflation developing all over again.' He called for an improved education system, investment in infrastructure, promotion of research and development and wider measures to deal with long- term unemployment. But John Townend, chairman of the Tory backbench finance committee, wanted public spending cuts of pounds 5bn this year and pounds 10bn next year so the Government could meet its commitment to cut taxes.

'In my view, too high a proportion of the social security budget is going to the dishonest working in the black economy, to the work-shy who have elected to live off benefits instead of trying to get jobs and to those who irresponsibly have children knowing that they cannot keep them.'

The Bridlington MP hoped Mr Major realised 'the political danger that we face on this issue of taxation', and that he would launch a crusade to cut out waste, inefficiency, fraud and overmanning throughout the public sector. 'It is not too late for us to achieve our manifesto commitments on taxation if we act this year - but it will be too late if we wait for another 18 months.'

A Labour motion deploring the 'absence of a long-term economic strategy' and condemning tax rises and cuts in public services was rejected by 302 votes to 261.

A testy Sir Nicholas Lyell, the Attorney-General, rejected calls to throw light on the reasons why his parliamentary aide, Tim Devlin, has left the post. Mr Devlin claims he resigned as Sir Nicholas's Parliamentary Private Secretary on Friday in protest at defence cuts in his Stockton South constituency, but government whips say he was sacked because of his 'poor voting record and general ineffectiveness'.

Raising the issue at question time, John Morris, the shadow Attorney-General, asked whether his departure had anything to do with the case of Brian Charrington, a garage-owner who was charged with importing pounds 150m of cocaine. The charges were dropped. Mr Devlin had lobbied ministers for his release. Mr Morris asked Sir Nicholas for 'a categorical assurance that he was not approached as an intermediary by Mr Devlin in the case of Mr Charrington and neither was the Paymaster General, Sir John Cope, who has the responsibility for Customs?

'Will the Attorney clear the air as to why his PPS has departed? I understand he will not be replaced.' To Labour protests, Sir Nicholas retorted: 'I am surprised Mr Morris should concentrate on such a matter.' But further questioning by an affronted Mr Morris took it no further.

(Photograph omitted)