Major thaws on NHS pay freeze: Prime Minister apologises for raising taxes and backs off public sector pay fight

JOHN MAJOR yesterday admitted his 'regret' over tax rises in last year's two Budgets amid growing signs that the Government is preparing a retreat from plans to freeze the pay of 740,000 doctors, dentists and nurses.

The Prime Minister blamed what Labour again called the 'biggest tax hike in British history' on 'events' and rallied nervous supporters with a bullish pledge that the increases would 'safeguard the British economy in the years immediately ahead'.

He told the Commons: 'Events have forced us to raise taxes. I regret that. But it is necessary to raise taxes to make sure that we cut the borrowing requirement and provide the opportunity for sustained growth with low inflation over the medium term.'

His defence coincided with strong Whitehall indications that ministers are reluctant to open up a second front by confronting public servants on pay. Downing Street has received two Top Salaries Review Body reports for National Health Service medical staff which are believed to recommend rises of up to 3 per cent - more than twice inflation - and officials were at pains to say there was 'plenty of scope' for efficiency savings to fund increases.

Mr Major has yet to receive reports covering teachers and top civil servants, judges and Services chiefs. The Government is committed to paying the latter group a 2.8 per cent rise. Although the political embarrassment will be mitigated by it being merely part of a scaled-down three-stage rise awarded in 1992, there was speculation that the review body will recommend more 'catching up rises' of about 6.5 per cent for the most senior civil servants.

The conciliatory tone on NHS pay appeared to contrast with a statement last month by Michael Portillo, Chief Secretary to the Treasury, that the public sector pay bill would be frozen. And Kenneth Clarke - who warned after the Budget that 'not all' efficiency savings could be ploughed back into pay, adopted a more conciliatory line on Channel Four News last night, pointing out that he had set up the teachers' review body and had helped to set up the one for the NHS.

Mr Major's decision to tackle head on Labour's charge that he deceived voters on tax in the run-up to the 1992 election came after freely expressed worries among senior backbenchers and some party managers at the running Labour has made on tax in the wake of the controversy over the Government's 'back to basics' theme. His defence of tax rises came in reply to Margaret Beckett, Labour's deputy leader, who warned: 'From April this Government will squeeze every British family until the pips squeak.'

When Alan Beith, the Liberal Democrats' economic spokesman, challenged Mr Major to deny he had contemplated tax rises before the election to curb a forecasted pounds 28bn deficit, the Prime Minister retorted: 'If I had expected to raise taxes after the election, I would not have expressed the contrary view.'

Mr Major received unequivocal - and unexpected - support from Norman Lamont, dismissed last year as Chancellor, who said that whereas taxes had to be raised to reduce borrowing, 'Labour wanted much higher taxes to finance much higher spending'.

The Finance Bill - enacting the pounds 12bn rises over three years in Mr Clarke's Budget on 30 November - secured a second reading after a Labour-inspired Tory revolt over value-added tax on fuel failed, as expected, to materialise. However, a leaked memorandum on the Bill's future handling to Mr Portillo from his private office was seized on by Labour as demonstrating government jitters. It says because there is no agreement on timetabling 'life is likely to be made more difficult by the Opposition'. It suggests Mr Portillo should 'float' the idea of not taking the committee stage on the Commons' floor, pointedly warning against a debate on the married couples' allowance because of 'linkages with 'Back to Basics' and Child Support Agency issues'.

Mr Portillo insisted in the Commons yesterday that 'my aim is an ultra-low tax economy'. If an error had been made about the pace of the recovery, 'it was an error and not a matter of dishonesty'. However, Harriet Harman, Labour's shadow Chief Secretary, said the Tory claim to be the party of low tax was 'dead'.

Jimmy Boyce, 46 and Labour MP for Rotherham, who had been waiting for a heart transplant, died yesterday.

MP dies, page 2

Inside Parliament, page 8

Leading article, letters, page 15