Economic upturn may be exploited by early election

SOME CABINET ministers believe that an early election, as soon as 1995, is possible if the Prime Minister's strategy of breaking inflation, regaining economic growth and implementing a further round of tax cuts can be achieved by then.

It emerged after Tuesday's meeting of the Cabinet that ministers believe the immediate economic and political difficulties faced by the Government could well result in short-term by-election setbacks, reducing John Major's 21-seat majority.

It is pointed out, however, that the smaller Mr Major's majority becomes, the easier it will be for him eventually - when the economy and time are ripe - to exploit that as the justification for an early dash to the nation, in the expectation of getting a fifth successive Tory victory.

But such rosy optimism is currently far from the minds of many of Mr Major's backbench colleagues as Parliament breaks today for its three-month summer recess. Indeed, Tory MPs' doubts about the viability of his resolute approach to the economy have this week been pushed to the point at which some privately suggest he might not survive the Parliament as party leader and Prime Minister.

This week, even some of the most publicly loyal backbenchers were outlining pessimistic scenarios in which a volatile mix of Maastricht and continuing recession crushed party confidence in Mr Major's ability to deliver anything.

While some senior critics do not discount the possibility of Mr Major's 'no other way' policy succeeding, they cast severe doubt on the chances of early economic recovery, given Germany's unwillingness to make sacrifices for Mr Major's domestic benefit. They cite the German withdrawal from the European Fighter Aircraft project as evidence, and also argue that a French devaluation within the exchange rate mechanism could yet test Mr Major's resolve not to sanction a sterling devaluation.

Nevertheless, Tuesday's political session of the Cabinet was remarkable for its confidence that economic and political storms could be weathered, even on the basis of Mr Major's refusal to allow a precipitate cut in interest rates, or devalue the pound.

While backbench 'faint-hearts' talk of a high-risk gamble in which the Prime Minister stakes the success of his party on an ERM that will deliver low inflation, ministers are united in their public faith, and private conviction, that it will bring them election victory.

They are agreed, however, that success will not be immediately apparent and that the next two years will be fraught.

The first critical hurdle will be the current public spending round, in which Michael Portillo, Chief Secretary to the Treasury, is required to cut government expenditure to the bone - laying an early foundation for the essential pre-election expansion of the 20p income-tax band.

Mr Portillo, widely regarded as an eventual right-wing contender for the party leadership, recalls that when Mr Major was Chief Secretary, he had said that the job required him to make a series of short speeches to the Cabinet's big spenders. 'He explained that they are very short speeches, often just one word - 'No'.'

The current recession, bringing reduced tax revenues and increased benefit payments, will make the spending round even more difficult, and could well increase backbench jitters at a time of increasing unemployment, business bankruptcies and Conservative rifts over Maastricht.

It is against that anticipated background of economic gloom, political division and even occasional Commons defeat that Mr Major could well suffer by-election losses.

Saturday's election of John Smith and the resuscitation of the Opposition is bound to increase Labour's standing. But senior ministers insist that the Conservative strategy for the next election will be a revamped repeat of April's winning message - replacing tax and Kinnock with tax and 'what lies behind Smith'.

Ministers believe the expected election of Margaret Beckett as Mr Smith's deputy is a political gift, because their findings reflect Labour's post-election analysis: that the voters cannot stand her. While ministers would not stoop to remind the voters of Mr Smith's heart attack, they certainly expect the Tory tabloid press to dwell indelicately on the risk that the voters would only be a 'heartbeat away' from having Mrs Beckett in No 10.