Heseltine says fuel prices will not rise

MICHAEL HESELTINE, President of the Board of Trade, yesterday defended one of the most controversial elements of the new tax rises by pledging that fuel prices would be either static or lower, despite the imposition of value-added tax.

Mr Heseltine said that even with VAT at 17.5 per cent next year, recent falls in gas prices meant that they would still be 7 per cent less than at the time of privatisation. Electricity prices would be no higher than three years ago.

After a week of high-profile professions of loyalty to the Prime Minister, which have done nothing to diminish his own standing as Mr Major's potential successor, Mr Heseltine condemned 'scare stories' from the Opposition about energy prices.

His statement came as Stephen Dorrell, Financial Secretary to the Treasury, predicted confidently that the economy would continue to recover despite the latest wave of tax increases. While admitting that the increases might affect the pace of recovery, Mr Dorrell told BBC Radio's Today Programme: 'What we are seeing at the moment is a recovery that has been going on for nearly two years and which is delivering a growth rate in the British economy of around 2 per cent against a background of continued recession elsewhere in Europe.'

Mr Dorrell added: 'What we are seeing is unemployment fallen by over 200,000 over the last 12 months, the beginnings of recovery of investment, with exports at record levels. That all adds up to a reasonable, broadly-based recovery of the kind we want.'

Mr Dorrell said that businessmen now recognised the recovery was under way and the outlook for their businesses was improving. 'The man in the street sees that relatively late in the process. But the man running the business sees it first and that is why they are taking on more people.'

Mr Heseltine added that 'this winter the 12 Regional Electricity Companies have all announced either tariff reductions, a freeze on prices, or a rebate to domestic customers.'

By confining himself - as the Cabinet minister responsible for energy - to the VAT issue, Mr Heseltine elegantly avoided having to trespass into territory occupied by Kenneth Clarke, the Chancellor, and his chief rival for the leadership in the event of a crisis.

But as further ministers prepared to rally to Mr Major's defence over the weekend there were clear signs that Conservative Central Office was doing its best to divert attention from its own internal strife to an onslaught on the Labour Party aimed to put any crisis of confidence in Mr Major's leadership on hold until the issue inevitably returns following the European elections in June.

Party managers have grabbed with relief at the Easter recess as an opportunity to calm the ferment in the party.