Clarke takes tax fight to Labour: Chancellor defends Tories' reputation as the party of lower taxation

KENNETH CLARKE, Chancellor of the Exchequer, fought yesterday to contain the political damage inflicted by the admission that from next April the typical family will pay more tax as a proportion of earnings than in the final year of the last Labour government.

Mr Clarke mounted a robust defence of the tax increases in the last two budgets, in the face of an unrelenting Labour onslaught designed to undermine the Tories' reputation as the party of lower taxes in the forthcoming local and European elections, and beyond.

Labour was busily exploiting official estimates it has extracted from the Treasury showing the tax burden for a family on average earnings will rise from 32.5 per cent to 35 per cent, but Mr Clarke insisted the Government had not deviated from its aim of low taxation. 'People should keep as much of their own money as possible and we will deliver the lowest taxation that we responsibly can in the circumstances,' he said.

Mr Clarke, in an interview with BBC television's Breakfast with Frost, strongly defended the tax increases in his November Budget as a vital means of reducing public borrowing and added: 'We are on course to get rid of the borrowing. I think that has given a great boost to confidence, to the economy, and we see the growth emerging, every prospect of the recovery getting stronger.'

The new row over tax - which follows figures released in a written answer from Stephen Dorrell, Financial Secretary to the Treasury - comes on the eve of a Labour attempt to reverse the imposition of value-added tax on fuel in the Commons tomorrow.

Labour now believes that the latest tax increases - which it estimates will mean the average family paying pounds 50 per month more in all forms of direct and indirect tax - have given it an opportunity to establish the credibility of its own policy on taxation; it has been unable to do that in the past three general elections.

The figures released by the Treasury show that for a family with two children on average earnings, the Tories have only once achieved a proportion below the 32.2 per cent level of 1978-79.

Gordon Brown, the Shadow Chancellor, claimed that on current trends taes would rise to 38.5 per cent of national income by 1998-89 and added: 'The Conservatives are now making the biggest tax demands in history. The Chancellor cannot deceive his way out of the Tory tax embarrassment.'

He added: 'John Major and the Chancellor are once again attempting to deceive Parliament and the country. The facts are incontrovertible: that tax is higher than under Labour.'

Mr Clarke last night acknowledged that at the end of the last Labour government, the Chancellor at the time, Denis Healey, did bring tax proportionately lower 'than where we are the moment'. But he insisted that with a 'declining economy - inflationary, debt- ridden' that had been one of the 'most irresponsible things Denis Healey did in the run- up to the election'.

The latest quarterly survey of manufacturers by the Confederation of British Industry will show this morning whether the looming tax increases are making industrialists nervous. Surveys of consumers have so far shown little effect, although most economists believe people will tighten their belts after they see the impact on their pay slips in April.

The CBI is nonetheless expected to renew its call for another cut in interest rates, arguing that inflation remains well under control and that the strengthening in the pound is alarming exporters.

Leading article 15

James Fenton 16

CBI fears 27