Brown sees cracks in `economic miracle'

Chancellor Kenneth Clarke was given a clear warning yesterday by Gordon Brown, his Labour shadow, that the rise in interest rates would curtail the room for tax cuts in his Budget

Mr Brown said the rise in inflation would hit home owners, and underlined the need for a prudent Budget on 26 November. He said it showed that cracks were already appearing in John Major's "economic miracle".

The Prime Minister clashed angrily with Tony Blair in the Commons, accusing the Labour leader of pursuing "grievance politics" as he drove home Labour's pre-Budget charge - repeated in a party political broadcast - that the voters would not trust the Tories on tax.

Mr Major told him: "What you cannot stomach is that the British economy is in better shape than any Labour government has ever been able to put it." The Prime Minister said the rise in inflation from 2.1 per cent to 2.7 per cent was "a statistical aberration". But Mr Blair dismissed this as "ridiculous"

The rise in inflation reinforces a pre-Budget poster campaign by Labour attacking 22 tax increases since the 1992 general election. It is being backed up with a party political broadcast, modelled on a horror film.

Calling for urgent action to tackle the lack of investment which was the underlying cause of price rises, Mr Brown said: "Two weeks ago, we had an interest rates rise. At the beginning of this week, mortgages started to rise again. Now we have the largest rise in inflation for six years.

"Within only two months of the Prime Minister declaring an economic miracle, the cracks are already appearing, exposing the underlying economic weakness of the Tory economic record. It makes a mockery of the Prime Minister's claim to have conquered inflation."

Mr Brown said the interest rates rise two weeks ago was "necessary and inevitable", and it was now important to take action to deal with inflation. "We are demanding that we have a prudent and sensible Budget."

Committing Labour to reverse any move to abolish capital gains tax, Mr Brown said it would open the door to tax avoidance which would cost more than pounds 3.5bn, estimated by the Treasury.

Ministers privately welcomed the upturn in the economy, in spite of the inflation, but feared the Chancellor will be forced to raise interest rates again, flattening the lift it is giving the Tories in the opinion polls.

Welcoming this week's 40,800 fall in the jobless figures, the Prime Minister told the House: "Unemployment here is falling in a way that cannot be seen anywhere else in the continent of Europe.

"I don't think that is unrelated to the fact that we have avoided the burdens on business that so many of our partners have accepted and that would have been accepted by Labour."

Mr Blair countered: "Today's inflation rise, together with the sharp rise in long-term interest rates, should set the warning lights flashing." And he asked the Prime Minister: "How do you square it with your promise, made just a few months ago, that you would meet your inflation target by the end of this year?"

Mr Major retorted: "I know the retail price figures are complex to understand, but I think you have failed to understand the impact of the figures."