Forget the feelgood factor, says Dorrell

A CABINET left-winger yesterday said that Britain does not need a "feelgood factor", sparking a new debate over the merits of early tax cuts.

In an attack on right-wing calls for quick tax reductions, Stephen Dorrell, Secretary of State for National Heritage, said that "pursuit of a feelgood factor would not attract support", and warned that the Government must be careful to prevent a false pre-election boom.

His comments contrast sharply with those made by John Redwood, Secretary of State for Wales, who said on Friday that the voters in the Dudley West by-election wanted "to feel a lot better" and were unhappy about tax increases.

The division of opinion comes as ministers debate whether they should offer a cast-iron pledge not to increase indirect taxes, following the VAT on fuel rebellion and the by-election disaster.

In the wake of the Dudley West debacle, most believe the Chancellor will have to give a clear-cut pledge to peg VAT on fuel at 8 per cent for all time if the Conservatives are to regain the initiative over tax. Some well-informed ministers are now pressing for a pre-election promise not to extend the scope of VAT to any other areas. They believe that the "working poor'' have suffered from Conservative tax policies since the last election.

In his speech, Mr Dorrell took on right-wing colleagues who have been arguing for swift and extensive tax cuts. He said: "When commentators talk of an economic feelgood factor they are hankering after the over-confidence of a consumer boom, when house prices are rising, salaries are rising, borrowing is rising and the only thing that trades at a discount is common sense."

Addressing Conservative students and members of the German Christian Democrats, he added: "The British people have seen it all before and - which is more important - they have seen what happens next. They know that the easy confidence of a consumer boom is too good to be true''.

Arguing for "sound money'' economic policies, Mr Dorrell said that it was vital that the electorate feels right about government policy rather than "feeling good".

On Friday Mr Redwood, asked about the Dudley West result, argued that the voters "want to feel a lot better and we haven't yet got to the point in the economic recovery where that is being translated into much higher real incomes and better living standards. They are not very happy with the tax increases we have had to put through. Those are important messages in that by-election result."

Labour, meanwhile, will seek to discount the impact of any income tax cuts the Government can make next year, by stressing that they will be reversed if the Tories are re-elected. The Labour leader Tony Blair will also seek to establish Labour as the party of the high living standards.

There were further signs of difficulty for John Major last week when it emerged that his policy unit will soon have three unfilled vacancies, including its top position. Francis Maude, the former Treasury minister, last week withdrew from the running forthe top job because it proved impossible to combine it will fighting a seat at the next election.

Yesterday David Hunt told Radio 4's Today programme: "We have got to unite behind the reforms of the last 15 years. We now have to begin the fightback.

"We have the resources, policies and people. We just need a bit more teamwork. We have to do it through leadership."

The Feelbad Factor, Inside Story, page 15