JOHN MAJOR has suffered a devastating blow to his Government and to his personal standing as Prime Minister with the defeat of a pivotal part of Tory Budget plans to raise tax on fuel.
During a night and day of high drama at Westminster, Tory rebel MPs - many of them effectively thrown out of the party in a revolt over the European Union budget last week - overturned the Government's economic policy and undermined Mr Major's authority.
The Government was defeated by eight votes over the imposition of more Value Added Tax on domestic fuel when, if all its MPs had voted in accordance with party instructions, it would have had a majority of 14.
The Chancellor of the Exchequer Kenneth Clarke was forced into a political climbdown, admitting he could not now effectively proceed with the new tax.
The issue has been boiling up for months and even measures to help the old and poor offset the tax announced in the Budget last week did not placate MPs who argued that they would still be much worse off.
Labour leader Tony Blair said yesterday that the Government had lost control of events and was no longer fit or able to govern.
'It was a humiliating defeat,' he said.
Even ministers privately admitted the defeat was sensational and demonstrated the lack of control party chiefs now had over the rebels they accused of committing political suicide.
Senior ministers insist that the word 'crisis' this time is not an exaggeration.
Mr Clarke's reaction was that the move was a defeat for commonsense: 'These were the worst arguments I have been beaten by for a long time.' But he told MPs: 'It is only right that we should listen to the views expressed. I have therefore decided not to proceed with the second stage of Value Added Tax.' The Government had thought it would just scrape through after Mr Clarke spent two days trying to convince Tory rebels that the move was necessary. He also threw an extra GBP120 million (HK$1.44 billion) into his compensation package for the old.
Shadow chancellor Gordon Brown said: 'This signals a turning point in the politics of this country. The Conservative Party may remain in office but they are tired, discredited and out of touch.' A television poll yesterday showed 89 per cent of Britons now believe it is time for a change of government.
Yesterday Mr Clarke tried to play down what the press are calling a 'disaster'. He has now got to recoup the GBP1.5 billion the tax would have brought in.
'What I have to do now is make sure that the Budget is put back on course by a combination of tax and spending measures which will enable us to carry on getting our public borrowing under control, getting our public finances healthy and keeping up the remarkable record of growth, recovery and falling unemployment that we were beginning to acquire,' Mr Clarke said.
He will come back to Parliament today with measures to recoup the loss but insists he will not resign.
Pundits yesterday suggested that the Government did not seem able to grasp that it now had only a tiny majority.
The press seems likely to turn the heat on Mr Major and although there can be no move to unseat him at this time of year, one headline summed up the feeling even among the Tory media yesterday. VAT's Your Lot, said The Sun.