Major defiant as turmoil grows

John Major last night called on Tory MPs to unite ''in the national interest'' and defiantly dismissed claims that he was under threat as Ministers fought to contain the shock-waves of the Government's crushing Commons defeat.

The Prime Minister compared putative leadership challenges to ''Bunter's postal order - widely talked about but it never actually arrives.''

As Kenneth Clarke, the Chancellor, put the finishing touches to today's new fiscal package to make up the pounds 1bn shortfall left by the humiliating loss of the second stage increase in VAT on domestic fuel to 17.5 per cent, Mr Major told a meeting of business people in London that Tuesday night's Commons decision had been a ''mistaken vote''. Cabinet ministers - some of whom met last night to hear Mr Clarke's recommendations - expected the package to be a mix of indirect tax increases and cuts in capital spending.

Meanwhile Mr Clarke sanctioned a 1/2 per cent interest rate rise to calm the markets after to Tuesday night's defeat.

Mr Major told his City audience he knew of ''no tax that has been misrepresented in such lurid and emotional terms as the tax upon which we lost the vote last evening''.

In an interview with Channel 4 News last night Mr Major went farther than before in leaving the door open for a referendum on British membership of a European single currency - the demand of a growing chorus on the right of the party. Mr Major said it was far too early say if the 1996 conference on the EU's future would merit a referendum, but he acknowledged that the question - ''even further away'' - of a single currency was a ''very significant decision.'' He added: ''I haven't ruled out a referendum.''

But amid signs of Cabinet divisions over whether the rebel MPs who have lost the whip for revolting against the European Finance Bill should be reinstated, the Prime Minister was tough in warning that their return to the fold depended on their attitude to the ''votes that lie ahead''.

The Government accelerated the progress of the European Bill by offering Eurosceptics a modest concession, agreeing to strengthen the powers of the Public Accounts Committee to scrutinise EU spending in the UK. In an unexpected bonus for the Government, the Bill reached its Third Reading - earlier confirmed as a confidence issue - in the early hours of today, completing its Commons stages 24 hours ahead of schedule. With Labour expected to abstain, the Government was set to win the vote overwhelmingly.

Amid renewed rumblings about the leadership, some Tory MPs compared Tuesday's defeat to 1976, when Denis Healey, the Labour Chancellor, suffered five defeats on the Finance Bill. ''Major is a great survivor; he'll struggle on, but we may lose the election,'' said one minister.

Tory MPs were hoping the vote, halting the VAT rise, would bring relief in their constituencies. But the threat of renewed revolt was raised by Nicholas Winterton, the maverick Tory MP for Macclesfield, this time over the Chancellor's cut in protection for the mortgages of the unemployed. Mr Winterton said the party appeared to be in the grip of a ''death wish''. One senior member of the Tory backbench 1922 Committee said: ''We are heading for the rocks. We have got to change tack, and very fast.''

(Photograph omitted)