Major on the Ropes After Defeat Over Fuel Tax

LONDON -- Prime Minister John Major battled to reassert his political authority Wednesday by approving a rise in interest rates just hours after Conservative Party rebels humiliated the government with a shattering defeat in a parliamentary vote.


The defeat over a proposal to more than double value-added tax on gas and electricity bills, a key element of his budget, left Major looking more than ever like the lame-duck head of a minority administration doomed to lurch from crisis to crisis until the next election, due by April 1997.


But officials said Major was determined to fight on and had told businessmen at a private meeting that he was confident of getting his full legislative program through parliament.


"It is a serious exaggeration to say that the government cannot conduct its business and that the government cannot govern," one senior government official said.


Major could face another serious challenge when the House of Commons votes again on controversial legislation to increase Britain's contribution to the European Union budget. A vote was due later Wednesday or Thursday.


The government won the first vote on the EU budget last week but paid a heavy price by kicking out from the parliamentary party eight Conservatives who refused to support the bill.


Their expulsion technically wiped out Major's 14-seat majority in the 651-seat House of Commons and made it harder for the government's business managers to "whip" the rebels into line in Tuesday night's vote.


Five of the eight outcasts abstained and three voted against the plan, helping to hand Major an eight-vote defeat that overjoyed the opposition.


"The government can not even get its own budget through," Labour leader Tony Blair said. "It is terminally incapable of asserting authority over its own party."


Media commentators were united in suggesting that Major's tax defeat may be one disaster too many for the embattled prime minister.


"Last night's defeat ... proves that John Major has lost authority over his party and many of the MPs have lost their respect for him," the Times newspaper said in its editorial.


Finance minister Kenneth Clarke, who immediately abandoned plans for the tax increase, will present a new package of tax and spending measures to parliament Thursday to plug the ?1.5 billion ($2.35 billion) hole punched in his budget by the defeat.


With financial markets unsettled by the government's defeat, Clarke wasted no time by ordering a half-point increase in borrowing costs to 6.25 percent to head off a possible run on sterling and show the government was in control of the economy.


Government officials said the move was fully justified because the strength of the economy threatened to rekindle inflation. But a senior official acknowledged that the VAT vote debacle was "part of the reason" for the timing of the increase.


Amid renewed media speculation that Major would be unable or unwilling to stumble on as leader, Clarke said it was time for the Conservatives, in power since 1979, to stop fighting each other.


"To keep the government in power, the parliamentary party must act as a party of government," Clarke told BBC radio. "Let's have a bit of common sense and less of this populism."


But British bookmakers Ladbrokes is betting the Conservatives are finished after 15 years in power. It slashed the odds on Labour winning the next election to 2-1 from 3-1.