Major Reshuffles Cabinet To Fix Britain's Economy

FIRING his top economic officer and reshuffling his Cabinet, Prime Minister John Major yesterday set Britain on a course of tough new economic policies that will include public spending cuts and tax increases.

Mr. Major replaced Chancellor of the Exchequer Norman Lamont with Home Secretary Kenneth Clarke, a political heavyweight and an advocate of European unity, in a move that showed a determination to come to grips with ballooning public debt and an economy moving only slowly out of the longest and deepest recession since the 1930s.

Mr. Clarke's elevation to the top economic job was seen by Conservative Party parliamentarians as an indication that the prime minister intends to follow pro-European Community policies once the Maastricht Treaty on European integration is signed into law by the Queen, probably by the end of July.

The new chancellor has been a campaigner for European unity for many years. He was an enthusiastic supporter of the exchange rate mechanism (ERM) of the European Monetary System before Britain was forced to quit the ERM last September.

In a gesture to "Euroskeptics" in the governing party, Clarke in recent months has said he does not favor an early return to the ERM. Unlike Mr. Lamont, however, he remains an advocate of managed exchange rates.

Lamont was removed from the chancellorship after a long rear-guard action to save his job. He was offered another post in the government, but declined. A supporter said yesterday that Lamont was likely to be an outspoken backbench critic of the government. Sources close to him said he was leaving the government in a mood of considerable bitterness.

Reshaping his Cabinet, Major also removed or reassigned six other senior ministers. The prime minister apparently was responding to a widespread feeling in the Conservative Party that Lamont was not the man to pursue new economic policies. A Downing Street official, speaking after the reshuffle, said the aim was "to refresh the government and set a new course for the future."

Major was shaken a month ago when the Conservatives lost what they thought was a safe seat in a key parliamentary by-election. They also sustained heavy losses in local government elections. Many former Conservative Party voters said they had turned against the government because of Lamont's economic policies and what some saw as his arrogant political style.

Clarke, the new chancellor, is a distinguished legal advocate renowned for a rough-and-tumble style of debate. His first Cabinet job was as health secretary. He spearheaded sweeping changes in the national health service, and was not afraid of head-on clashes with doctors and nurses who opposed him.

In European affairs he will offer solid support for Major and Foreign Secretary Douglas Hurd, both of whom are committed to the Maastricht Treaty. Operating as a trio, analysts say, they will project a line that is avowedly pro-European but opposed to the centralizing policies associated with Jacques Delors, president of the European Commission.

Clarke's principal tasks will be presiding over a round of public spending cuts designed to slash Britain's 50 billion British pounds ($77.5 billion) government debt and ensure that inflation remains under control.

The prime minister intends to assign him to the parallel task of framing new taxation measures, including possible increases in personal income tax. Clarke will need all his skills as a determined political operator to persuade the public that tax increases are necessary.

Before the April 1992 general election, which returned Major to power, the Conservatives undertook not to increase taxes. But Lamont, in his budget last month, imposed value-added tax on fuel, and this was attacked by the Labour opposition as a broken election pledge.

The Cabinet reshuffle also represented an attempt by Major to restore his own political reputation, damaged by recession. Opinion polls indicate that he is the least popular of any prime minister since 1945.Clarke's replacement at the Home Office, where he pursued stringent law and order policies and was an advocate of strict immigration control, is Michael Howard, the former environment secretary. Mr. Howard is widely seen as a Euroskeptic, but the balance of the new Cabinet appears tilted toward the pu rsuit of affirmative European policies.