Clarke lays claim to be next Chancellor: Early ERM re-entry ruled out in attempt to calm right-wing fears

KENNETH CLARKE yesterday firmly staked his claim to replace Norman Lamont as Chancellor by underlining his commitment to Britain's re-entry to the exchange rate mechanism but, in effect, ruling out any ERM move before the end of the present Parliament.

His remarks will ensure he secures support from across the Conservative Party, and may disarm righ-wing critics who think him too 'pro-ERM' and are backing Michael Howard as a 'stop Clarke' candidate for No 11. The Home Secretary's intervention on the Chancellor's ground will also undermine Mr Lamont's fight to remain in office.

Mr Clarke emphasised that he remained a staunch supporter of an exchange rate policy but said, on the BBC Breakfast with Frost programme: 'I'd be surprised if we were back before the end of this Parliament. What I don't think we should do is reject altogether the idea of managed exchange rates and some stability in the exchanges across Western Europe.'

The 92 Group of Thatcherite Tory MPs has invited Sir Norman Fowler, party chairman, to a meeting today and some leading members intend to seek a government commitment that Britain will not re-enter the ERM within this Parliament's lifetime.

Britain's re-entry, which has divided the Cabinet, will be forced back on to the agenda if the Danes vote 'yes' to the Maastricht treaty tomorrow and the Commons gives a third reading to the Maastricht Bill on Thursday. Mr Clarke said a 'no' vote 'would send shocks all around the rest of Europe,' adding that Britain could not let the EC carry on without Denmark.

'I think we would have to hold the coat tails of some of the more enthusiastic Germans and others and go through a period of very difficult rethinking about the Community, which may well not emerge with solutions which the Euro-sceptics here would like at all.' However, he also warned Belgian leaders, who at the weekend called for faster progress towards a federal Europe, that Maastricht was the limit of public support.

The Cabinet divisions over the ERM were confirmed by Sir Edward Heath, the former Conservative prime minister, who said on the BBC Radio World this Weekend programme yesterday: 'There are undoubtedly a group in the Cabinet who recognise it is necessary.' But it remained to be seen if they would prevail, he added, saying the 'Euro-sceptics' would be 'hated for all time' for what they had done to the party.

Senior Tory sources say Mr Lamont wanted to make a commitment to stay out of the ERM for the lifetime of the Parliament, in effect ruling out re-entry until after the next election. 'He was overruled by the Cabinet,' the source said. .

The Maastricht treaty requires member states to prepare for economic convergence by 1 January 1994, in the second stage of economic and monetary union, leading in 1996 to a decision on a single currency.

The right wing fears that the threat of re-entry - coupled with policies to engineer convergence of European economies - would destroy all hope of economic recovery by returning Britain to a fixed exchange rate policy and high interest rates.

Mr Clarke, whose popularity among Tory MPs climbed after his combative Commons performance in the wake of the Tory election disasters earlier this month, his abandoning of unit fines and dismissal of Opposition demands for an inquiry into alleged MI5 bugging the Royal Family, led a chorus of Cabinet support for John Major at the weekend. But it was coupled with a message to colleagues to sharpen up their act.

'Given the economy is recovering, if we can avoid banana skins in other areas, if we can set our agenda in areas like my own - law and order - get on with the process of important reforms in education, prove what we're doing for the railways . . . I think a lot of this will fade into a period of history to look back upon as John Major's darker period,' he said.

The Government may be forced into retreat on the Bill to semi-privatise BR by amendments being tabled by Tory MPs. Alarmed by the prospect of further defeat in the Christchurch by-election, caused by last week's death of Robert Adley, they also want Mr Major to announce the Government is dropping privatisation of the Royal Mail.

Leading articles, page 17

James Fenton, page 19

Belgium's EMU warning, page 22

ERM reform proposal, page 23