Under new management: Major insists economic and tax policies are unchanged

NORMAN LAMONT lacked the credibility to carry on as Chancellor, John Major made clear yesterday as he confirmed he had 'refreshed' his government but was sticking firmly to current economic policy.

The Prime Minister went on apparently to block prospects of any watering down under Kenneth Clarke's chancellorship of the plans for VAT on domestic fuel, despite their deep unpopularity shown by the Newbury by-election and county council election results.

Questioned over the need to sack his Chancellor when there was to be no change in policy towards the exchange rate mechanism and interest rates, the Prime Minister said that policy had been set out clearly and did not change with new personnel.

Mr Lamont, a friend, had taken 'a great deal of criticism as Chancellor . . . The fact that it has been necessary to make a change I understand must be very hurtful to him.' An evidently bitter Mr Lamont eschewed the tradition of a formal exchange of letters on Thursday morning.

In Paris for talks with his French counterpart, Edouard Balladur, Mr Major said: 'It's always necessary from time to time to refresh a government . . . to put the right people in the right jobs.' The timing was geared to discussions on the first unified tax and spending Budget. The Cabinet must decide in the next month on public spending planning totals. Asked whether VAT on domestic fuel would survive, Mr Major replied: 'I do not anticipate the present Chancellor changing what was . . . approved by the Cabinet.'

Mr Clarke moved swiftly yesterday to replace some of Mr Lamont's key advisers with his confidants from the Home Office. Bill Robinson, Mr Lamont's special economic adviser and former director of the Institute for Fiscal Studies, will be replaced by Tessa Keswick, who has worked with Mr Clarke since he was at the Department of Health. Mrs Keswick, 50, is married to Henry Keswick, of the Hong Kong trading group Jardine Matheson.

Mr Lamont's departure is likely to see a reshuffle of Treasury mandarins as well as the replacement of political appointees. Jeremy Heywood, Mr Lamont's Principal Private Secretary, is expected to move once Mr Clarke has bedded himself in. The position is particularly powerful, as the private secretary controls the access of officials and advisers to the Chancellor.

Along with criticisms from some Conservatives that Mr Major had done too little, there were some misgivings yesterday that the dispatch of a man merely carrying out government policy was too brutal.

Several Europe rebels - though not Bill Cash, their de facto leader - thought Mr Lamont might emerge as a cheerleader for the party right, tempering the pro-ERM tendencies of Mr Clarke.

It is more likely that Mr Lamont will draw his pounds 30,854 backbench MP's salary, attend Westminster comparatively rarely, and pursue other interests.

Mr Major's comments and those of Michael Heseltine, President of the Board of Trade, indicated that Mr Lamont might have some cause for complaint, but that he should not rock the boat.

Mr Heseltine insisted Mr Lamont was sacked because 'speculation was feverish and the body politic wanted a scapegoat . . . . Norman Lamont didn't create the world's recession. He had made some very unpalatable decisions in order to bring Britain through it . . . . He will feel bitter that he didn't get a chance to reap the benefit of that, but politics is a ruthless business.'

Letters, page 17

Market reaction, page 19

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