Clarke ups the currency stakes

THE Cabinet battle over a referendum on a European single currency escalated yesterday as the Prime Minister appeared to be heading for a show-down with his Chancellor, Kenneth Clarke.

Allies of John Major dismissed clear indications that Mr Clarke was digging in over his opposition to a referendum and argued that the Chancellor was fighting a losing battle. One source said Mr Clarke was simply trying to put down a marker for the left of the Conservative Party. Another said the Chancellor had made an error in raising the stakes because he would be forced into an embarrassing defeat on the issue.

The row reopened on Saturday with newspaper stories indicating that Mr Clarke was "digging in" and was backed by the deputy prime minister, Michael Heseltine. That raises the possibility that the Chancellor might be prepared to quit over the referendum.

Malcolm Rifkind, the foreign secretary, is preparing a paper on the practicalities of a referendum but the Cabinet has yet to discuss the paper. The issue may be raised on Wednesday at the final Cabinet meeting before Easter.

Allies of the Prime Minister predicted that the referendum pledge would go ahead, and argued that Mr Clarke would not resign his position in protest. One source said that Mr Clarke had won a series of concessions and would be satisfied only if the whole notion of a referendum was dropped.

It is now accepted that the Conservatives will not rule out entry into a single currency in the lifetime of the next parliament, or hold a referendum on issues broader than monetary union. Moreover, Mr Clarke appears to have won a pledge that, if the Cabinet endorsed entry into a single currency, ministers would be held to collective responsibility and would not be permitted to campaign against.

One source said: "The Chancellor is outnumbered in the Cabinet." Conservative strategists had pencilled in yesterday's meeting at Conservative Central Council as a possible platform for a referendum pledge. That was made impossible by the continuing Cabinet wrangle.