HAVE PITY on the Chancellor Kenneth Clarke.

His war chest of vote-winning tax cuts has been swiped at a stroke.

For his and the government's hopes of a pre-election giveaway look dashed today by a Court of Appeal ruling forcing the Treasury to pay back up to £5billion in VAT to retailers.

That is the amount that Customs and Excise are estimated to have wrongly charged on interest-free deals - ever since VAT was introduced in 1973.

But rather than just being a windfall for the High Street stores and car dealers who offered customers credit at zero per cent, it is what all that money is equivalent to in income tax terms - 2.5p to 3p - that is more significant.

This giant payback could not have come at a worse time.

For, in addition to the denting of the government's scope for tax cuts by the costs of tackling the mad cow disease crisis, it is now looking at a wipe-out of them.

Furthermore, with its chances of delaying a general election until a year from now seriously jeopardised by its wafer-thin Commons majority, it has little time left to implement new economies that can be turned into tax goodies.

And this may prove critical.

For tax cuts, surely, were the Tories only hope of salvation.

That strategy now looks to have been torpedoed just as other factors were making it seem that the government's plan of playing the long game by holding an election as late as possible was beginning to pay off.

For with inflation low, mortgages at their cheapest since the Sixties, unemployment dropping, consumer spending on the up and the housing market on the mend, all the ingredients for the return of the feel-good factor were in place.

Additionally, Labour's long lead in the opinion polls was beginning to look assailable - as is evidenced by a survey today showing that the voters which the party had won over are beginning to display doubts about its ability to deliver its promises.

Thus, on top of that trend, the tax cuts bonanza that Kenneth Clarke had been resolutely storing up in preparation for his pre-election budget - with the hope of them being triggered into effect with devastating timing at the launch of the election campaign - could have been the thick icing on the feel-good cake.

And, possibly, that might have enough to swing it for the Tories a fifth time in a row.

What now, then, as the plan looks to be in ruins and Ken must do the sums anew?

Converted for the new archive on 14 July 2000. Some images and formatting may have been lost in the conversion.