Britain's Tories Slash Outlays, Plan Tax Cuts

BRITISH Prime Minister John Major obviously has an eye on the next election. Deep cuts in public spending in the new budget are intended to clear a path for tax cuts in about two years. But a hike in the fuel tax is going to run into opposition, say political analysts.

Kenneth Clarke, chancellor of the exchequer, unveiled the government's heavily political strategy for the British economy in his annual budget speech Tuesday.

Mr. Clarke forecast 4 percent economic growth - ``the highest in Europe.'' The public spending cuts will total 24 billion British pounds (US$37.4 billion) over the next three years. And, Clarke held out the prospect of being able to slash personal taxes as a result.

But Prime Minister Major's government will likely be challenged by his own Conservative Party early next week on the most unpopular element in Clarke's budget: a 17.5 percent tax on home heating fuel and electricity. The expected confrontation comes on the heels of Monday's showdown, when Major's government lost its majority in the House of Commons following a revolt by its own backbenchers over European policy.

Opposition unites

The Labour opposition and Conservative rebels are threatening to throw out the new tax and further weaken Major's already wobbly government.

In his budget, Clarke set out to calm a ruling party seriously split over Europe, trailing badly in opinion polls, and faced with a confident Labour opposition under a new leader, Tony Blair.

The run-up to Clarke's budget was a period of high drama and embarrassment for the government. On Monday, eight of the government's Commons supporters refused to vote for a bill to increase Britain's annual contribution to the European Union.

An angry Major, who made the issue one of confidence in his government, ordered the Conservative whip withdrawn from the rebels, who were later joined by another member of Parliament (MP) opposed to European policy.

Withdrawal of the whip from the MPs means the government no longer has an assured 14-vote majority in the Commons and is likely to be dependent on the support of Ulster Unionist MPs to pass contentious legislation.

Faced with a party in considerable disarray, Clarke laid out a medium-term economic strategy that will encourage workers to restrain pay demands and companies to create new jobs. Also the government will slash outlays on social security, roads, and public utilities.

``The aim was to settle Conservative nerves,'' a party official said after the Clarke speech.

Some Conservative MPs applauded the spending cuts and quickly saw that savings of 24 billion British pounds would make it possible for the government to sanction tax reductions ahead of the general election due 2 1/2 years from now.

John Townend, chairman of the Conservative backbench finance committee, praised the planned cuts and said Clarke was ``on the right track.'' Sir David Knox, another influential Conservative backbencher, said the budget was ``right and sound'' and would prepare the way for tax cuts ``at the proper moment.''

But what Clarke did not do was bow to mounting Conservative pressure to drop plans to raise the value-added-tax on domestic fuel to 17.5 percent. Instead, he offered old age pensioners a payment of 1 a British pounds week to help meet the higher charges.

Labour leader Blair, replying to the budget speech, dismissed the fuel compensation payment as ``inadequate.'' He said his party would be putting forward a motion next Tuesday calculated to appeal to Conservative MPs who oppose the new tax.

Within an hour or two, half a dozen Conservative MPs were threatening to support the Labour motion. Nicholas Winterton said: ``If there is an opportunity to vote against the tax, I will certainly take it.''

Economic and political analysts broadly agreed that Clarke's strategy was likely to be effective in the longer term if the government could survive attempts to derail the domestic fuel tax.

Budget pleases business

David Simon, chief executive of the British Petroleum Company, said the budget would ``please business'' and welcomed the government's commitment to keep inflation within a band of 1 percent to 4 percent.

Financial Times political columnist Joe Rogaly, called the budget ``a shield to fend off the knives'' of Conservatives unhappy with the government.

In the next few days, the government will try to persuade Conservative rebels, now free of the party whip and others worried about the plight of old age pensioners, to support the fuel bill, or at least to abstain from voting against it.

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