Civil war in Downing Street

Civil war has broken out in Downing Street, with the Prime Minister and Kenneth Clarke briefing against each other in a political battle that could yet kill all Tory chances of winning the next election.

Tony Blair said in Scotland last night: "This government is now descending into disorganised shambles. Things simply cannot go on like this."

The deep and irreconcilable rift between Number 10 and Number 11, the Chancellor next door, was fully exposed when Mr Clarke was forced to issue two denials of separate statements made in a BBC radio report on the background to the Prime Minister's statement on the single currency.

The denials had to be issued because the Labour frontbencher Frank Dobson revealed that the Chancellor had lunched with the BBC correspondent at a Mayfair restaurant on Wednesday.

But the same broadcast then - just as sensationally - fingered John Major as the source of Monday's controversial Daily Telegraph report, which said the Prime Minister would fight the next election on a policy of saving sterling from the single currency for the lifetime of the next Parliament.

That report flew in the face of a painstaking agreement reached by Mr Major and Mr Clarke last April - forcing Mr Major to repudiate the story in the Commons on Tuesday.

But George Jones, the Telegraph's political editor, told BBC's World at One: "I did have passed on to me comments which are understood to have come directly from the Prime Minister."

While the Tory leadership scrapped with a fury that reminded many of the geological fault that brought down Margaret Thatcher - following her Euro-rows with her Chancellor Nigel Lawson and the Deputy Prime Minister Geoffrey Howe - last night's weekly meeting of the backbench 1922 Committee erupted into one of the most dramatic and passionate debates one senior Tory could remember in more than 20 years.

In a debate that centred on the single currency, the biggest roar went to the Euro-sceptic Sir Peter Tapsell, who said that whatever anyone else said, sterling should "never" go into a single currency.

But two former ministers from left and right of the party encapsulated the Tory agony, with Tim Yeo and David Heathcoat-Amory arguing that the economic conditions were not right for membership of the first wave of the single currency.

According to the BBC's John Sopel, one of Mr Clarke's hosts on Wednesday: "The real irony is that Mr Clarke privately admits there is no chance that if the Tories won the next election, the party would agree to entering the single currency."

Nevertheless, Mr Sopel added: "He is making it clear that the policy is not negotiable, and that if it did change, not only would he go, but he predicts that a large number of middle-ranking and junior ministers would go with him."

The idea that Mr Clarke and ministers would quit was sensational enough, but the Chancellor's apparent view that the Conservative Party would split wide open was staggering.

Within the hour, however, Mr Clarke was forced to issue a statement saying: "I don't regard the BBC account of this week's events as accurate. I didn't threaten to resign and I am not threatening to resign."

Mr Sopel also said a number of other things that were naturally pinned on the Chancellor, including a view of the Telegraph report. "Ken Clarke doesn't doubt that the source of the story was someone close to the Prime Minister. But he has told friends, `It was a boomerang laden with high explosives which has blown up in the Prime Minister's face'."

In the Commons, Mr Major was directly challenged about the BBC report by the Labour MP Thomas McAvoy: "Do you agree with your Chancellor [that] a boomerang, wrapped in high explosive has blown up in your face?"

Holding a piece of paper, Mr Major said he had Mr Clarke's statement denying the report.

But that was not the only denial floating around Whitehall. The BBC report had also made an allegation about briefing and counter-briefing during the Tory conference.

Mr Sopel said: "Behind the scenes, Mr Clarke was furious that senior Conservative Central Office sources were briefing against him. They were telling the newspapers that the wait-and-see policy would be gone by the new year, after the forthcoming Dublin summit.

Last night, Central Office issued a statement from Mr Clarke and party chairman Brian Mawhinney repudiating any suggestion of conflict. Few believed it - any more than that the Downing Street war will end in anything but tears.

The perils of lunch, page 3