Major raises prospect of 5p tax cut

Attempt to raise `feel-good factor' will not fool the electorate, Blair says

The prospect of £10bn in tax cuts, slashing up to 5p in the pound off income tax, is held out today by John Major in an attempt to inspire the "feel-good factor'' in a new year message to the Conservative Party.

In a fresh appeal for unity, the Prime Minister also gives the starkest warning so far to his party that Europe threatens to "destroy us from within''.

seeking to ease the Government's troubles over Europe by holding out the hope of tax cuts, Mr Major acknowledges that achieving economic recovery has not been easy for many Tory supporters. "People have been through the pain and not yet seen the gain. But the pain was necessary to create the present favourable prospects,'' he says.

"The question is not whether we will cut tax, but when we will do so. I reaffirm to you today our manifesto pledge to make progress towards a 20p rate as soon as it is prudent to do so. As our economy gets stronger, the day on which we can return to our tax-cutting agenda comes closer.''

Mr Major's most explicit pledge so far of tax cuts in the next Budget was dismissed by Tony Blair, the Labour leader, as an insult to the intelligence of the voters.

"They [the Tories] put the equivalent of 7p on the standard rate of income tax, a £1,000-a-year extra tax for the average family in Britain. They will insult the intelligence of the electorate if they then expect people to be grateful if they give some of that money back to them,'' Mr Blair said.

The Prime Minister and the Chancellor, Kenneth Clarke, believe that cutting income tax will put Mr Blair and the Labour Party on the defensive by challenging Labour to go into the next election committed to reversing tax cuts the voters are already enjoying.

The Chancellor has cut the public sector borrowing requirement forecasts to make room for tax cuts before the next election. Cabinet colleagues believe they will have to be introduced in his next Budget to have any effect on the voters in time for the election.

The Tory high command is divided over how the tax cuts should be implemented. Conservative Party strategists are planning to urge the Chancellor to aim cuts at the Tory voters among the middle-income earners, who would benefit from cuts in the 25p standard rate. Mr Clarke's allies want the cuts aimed at the low-paid, by widening the 20p band.

However, that may not be enough to win back Tory support. The Dudley West by-election defeat showed that many Tory voters are also turning away because the parliamentary party is divided.

The Prime Minister says the Conservative Party can continue to be invincible if it is united. "The last four elections stand testimony to that. But disunited, our beliefs are weakened, our principles are dented and nothing can be more soul-destroying forour supporters at the grassroots, the bedrock of the party, than to see those whom they helped to get elected arguing against other Conservatives. They and I would prefer to see Conservatives attacking our real opponents . . . There is one issue above all others which threatens to destroy our party from within: Europe.''

Emphasising his Euro-sceptic credentials to win back the support of some of the trouble-makers, Mr Major says the Government does not support a European superstate.

But that failed to impress Euro-rebels who lost the Tory whip. Sir Teddy Taylor said: "The real tragedy is that the parliamentary party appears to be out of touch with its supporters in the constituency.''

Another rebel MP, Tony Marlow, said: "He is the leader of the party and it is up to him to prevent the party tearing itself apart. He knows the feelings of the people. It is up to him to harness those feelings to the necessary policies.''