Lamont ducks issue of full VAT aid for pensioners: Heath says wealthy should be prepared to pay more tax

NORMAN LAMONT last night brushed aside repeated Labour demands for a promise that pensioners and others on low incomes will be fully compensated for the imposition of VAT on gas and electricity as the four-day Commons debate on the Budget came to a stormy conclusion.

The Chancellor acknowledged that he had had to make 'unpalatable choices'. With government borrowing due to hit pounds 50bn in the next financial year, he said it was a Budget 'designed to do what is right', not to curry favour and popularity.

'Not to have addressed the problem of the Budget deficit would have been to run away from the most fundamental promises we made to the British people,' Mr Lamont told MPs before the Budget debate motion was carried by 306 votes to 279.

Two Conservative backbenchers, Nicholas Winterton (Macclesfield) and William Powell (Corby) are believed to have abstained on a vote paving the way for VAT on domestic fuel and power from April 1994. It was carried by 303 votes to 278. Another Tory who voted in the first division but not in the second was Michael Alison (Selby).

Sir Edward Heath urged the Government to pay full compensation for the increase, not just to pensioners and others on benefits, but also to people just above benefit level. The former Conservative prime minister said wealthier people should be prepared to pay more in taxes and suggested that political parties should return to the pre-1959 practice of making no promises about taxation.

'I do not believe that any government or Chancellor's record justifies them in being able to say with conviction that they can foresee the future economically for the next five years. It has never proved that they were able to do so. All the declarations about the rate (of income tax) can do is to mislead the electorate and lead to further embarrassment for the Government which then weakens our economic position internationally.'

Pressed by Labour MPs, including John Smith and Gordon Brown, the shadow Chancellor, Mr Lamont repeated that 'extra help' would be given to people on income-related benefits to pay the VAT on fuel over and above the inflation-linked annual uprating.

But he avoided giving a promise of compensation in full and said fuel prices had fallen by more than 8 per cent in real terms since 1986. 'There is still downward pressure on domestic electricity and gas bills, and because of these reductions my proposals to put VAT on fuel will not mean that prices will necessarily rise by 17.5 per cent over the next three years.'

Michael Heseltine, President of the Board of Trade, denied a report in the Observer of a 'furious row' between himself and Mr Lamont over the VAT move. 'Apparently I was furious I had not been consulted. . . I actually was consulted in the ordinary way. I made no protest for the simplest of all reasons - that I shared the Chancellor's judgement that it was necessary to raise taxes in the Budget.

'Of course any tax increases are likely to be difficult,' the President said. But he told the House he was not prepared to 'cop out' of difficult tax decisions on the 'contemptible' argument that he agreed with what the Chancellor was doing in principle but disagreed on particular items.

Robin Cook, Labour's trade and industry spokesman, said it was a Budget of 'failures, cheats and unjust men' who were clinging to office like limpets after breaking their promises. The Government had put forward the biggest tax increases of any Budget in history, he said.

'The party that promised year-on- year tax cuts has become the Government which has delivered year-on- year tax rises.'

With the Labour Party reportedly sifting Tory MPs' election addresses for promises on tax, Sir Edward said he had not looked to the future of taxes in any form whatever. 'I personally believe that it is wrong for parties at a general election to give undertakings about taxation,' he said.

He said the Government's aim of a 20p standard tax rate was 'not manageable' and warned that a very difficult path lay ahead.

'The economic position now is such with unemployment and the destruction of so much of our industrial base that it is going to take year after year to deal with this.' He believed that wealthier people would be prepared to pay a higher rate of tax.

(Photographs omitted)