A tax tangle to test Mr Clarke's nerve

THE CHANCELLOR of the Exchequer is not a man who embarrasses easily. Earlier this year, while still Home Secretary, he managed to turn a humiliating and comprehensive retreat from some of the idiocies of the 1991 Criminal Justice Act into a brutally effective, knockabout attack on the Opposition. When the serious and rather sensitive Liberal Democrat home affairs spokesman, Robert Maclennan, dared to interrupt him, Kenneth Clarke nastily advised him to 'lie down in a dark room'.

As a put-down it had all the subtlety of a Hale and Pace sketch. It was, however, funny, vulgar and intimidating - qualities for which the Tory back benches are immoderately grateful during these difficult times.

Such is Mr Clarke's self- confidence, nerve, chutzpah, call it what you will, that his ability to talk himself and the Government out of even the tightest scrapes has become an article of faith with both his party and his many journalistic admirers. After all, was not Mr Clarke virtually alone among ministers in his willingness to appear before the cameras in the immediate aftermath of the pound's expulsion from the exchange rate mechanism? While John Major and Norman Lamont huddled in shock below deck, Mr Clarke bestrode the bridge with Nelsonian unflappability.

If anybody can get away with a tough, revenue-raising November Budget, the argument goes, Ken can. Never mind that the Government won the election on the basis that it would lower taxes rather than raise them, Mr Clarke's unrivalled 'presentational skills' coupled with voters' short memories and low expectations should be enough to limit the damage. Alongside this touching belief in Mr Clarke stands another article of modern Conservative faith: that nobody really notices or much cares about increases in indirect taxation. In other words, as long as Ken doesn't try to bridge the fiscal gap with higher rates of income tax, we might just get away with it.

Well, I'm beginning to wonder. Nobody should underestimate the anxiety and anger here in Blackpool about the planned two-stage VAT levy on heating. For many party workers the hostility they are meeting on the doorsteps compares with the dark days of the poll tax. The prospect of Mr Clarke extending VAT further is being met in the Tory ranks with a kind of sick panic.

Mr Clarke himself is under no illusions about the difficulty of his hand. The ease with which VAT was hiked in 1991 to help get the Government out of its poll tax fix is no precedent. As Mr Clarke has observed, the party would have accepted a tax on every 10th red-headed man if that was the price to pay for killing off the poll tax. In part, Mr Clarke blames the notion of announcing the intention to tax, while delaying the implementation, for the head of steam which has built up against VAT on gas and electricity - a case of good economics but bad politics.

A further problem is the never-absent possibility of a temporary coalition between members of the barmy brigade and enough other malcontents to threaten a Commons defeat. Even post-Maastricht, this Government, with its majority of 17, still feels too much like a minority government to ministers trying to conduct heavy duty parliamentary business.

All that would be bad enough, but there is something much worse. It is the question of political legitimacy. Mr Clarke is usually the most relaxed of television performers. But on Sunday, when interviewed by Brian Walden at his forensic best, he looked not quite his usual insouciant self. Rattled would be overstating it, discomforted would not.

What got under Mr Clarke's skin was Mr Walden's reminder of the Prime Minister's words on the subject of VAT a few days before the 1992 election. The former political editor of the Independent, Tony Bevins, had made a rare journalistic breakthrough at the usually stage-managed morning press conference. Asked by Mr Bevins for a commitment that VAT would not be extended to cover the zero-rated items of gas, electricity, food, children's clothing and shoes, Mr Major had said: 'I have made the pledge in the past. We have no need and no plans to extend the scope of VAT.' In fact, Mr Major had not made such a pledge. But he did then, and at a crucial stage of an election campaign which, of the Tories' choosing, had become almost exclusively focused on the tax issue.

Nor can Mr Major really claim that the deterioration in the public sector finances which has led to the extension of VAT, was unpredicted. A few days after the Prime Minister made his pledge, the Independent published a specially commissioned impartial report by the accountants Coopers & Lybrand on the spending and tax promises of both major parties. The report concluded that, even allowing for strong growth in the economy, a Conservative government would have to raise the basic rate of income tax by 13p if it was to meet its spending commitments and, as promised in the manifesto, 'balance the budget over the economic cycle'. Given that Mr Major's declared aim was a 20 per cent basic rate of income tax, Coopers & Lybrand concluded that an extension of VAT, under cover of EC policy on indirect harmonisation, was a pretty foregone conclusion.

A pledge which Mr Major either knew or should have known he could not keep helped to win the Tories the last election. Mr Clarke hopes that people will forget and instead applaud the Government for its responsible stewardship of the economy.

He further believes (and in this he may well be correct) that when it comes to the next election, even if voters are sore about the tax burden imposed on them by the Conservatives, they will instinctively know that either of the other two parties are likely to tax them a good deal more heavily.

Two things are certain. The first is that a 'prudent' Budget next month will leave ordinary Tory supporters perplexed and angry - perplexed as to why the option of spending cuts has been ruled out and angry that the assurances not to increase taxes which many of them made to friends and neighbours have apparently been betrayed. The second certainty is that if the Conservatives make tax the overriding issue of the next election, they will be laughed out of office.