Major beset by divisions over Lamont and Europe: Tory turmoil continues in the aftermath of election setbacks

A SPLIT in the Conservative Party over the future of Norman Lamont, and a fresh outbreak of disunity over Europe yesterday, look set to ensure a prolonged period of instability for John Major in the wake of Thursday's shattering election defeats.

Over the weekend, Cabinet colleagues and some backbenchers joined forces to defend Mr Lamont. But MPs on the right of the party - even those not calling for Mr Lamont's head - insisted the damage should be repaired by a pledge not to return to the exchange rate mechanism in the current Parliament, and a referendum on Maastricht.

Unhappy MPs from all wings of the party were united over pressing on with contentious programmes such as educational testing and rail privatisation - leaving Europe to emerge once again as the issue that most divides Conservatives at Westminster, with renewed claims by the right that prolonged ERM membership had needlessly magnified the pain of the recession.

A majority of backbenchers in straw polls in two Sunday newspapers called for a Cabinet reshuffle either immediately or soon, with many wanting a new Chancellor. But Kenneth Clarke, the Home Secretary, told BBC radio that while the Government was not complacent over the 'dreadful' election results, blaming Mr Lamont was a 'gross simplification'. The policy had had the support of his colleagues, the Labour Party and the Liberal Democrats.

Mr Clarke argued there was a need to work out a medium-term agenda to restore public confidence and bedrock Tory support but was unable to specify what that might contain, compounding rather than limiting claims of a government in disarray.

There was little comfort even from the Prime Minister's most loyal supporters. John Watts, chairman of the all-party Commons Treasury and Civil Service Select Committee, said: 'It is a matter of time for the recovery to become more obvious and for people to recognise that.'

But Mr Watts said the most serious problem facing the Government was disunity. That was caused by the Maastricht conflict - set to worsen in the Lords - and exacerbated by Mr Major's small majority. 'All these criticisms about lack of firm leadership are about that small majority,' he said.

Christopher Gill, the Euro- rebel MP for Ludlow, strongly denied rumours that he would emerge as a 'stalking-horse' candidate to challenge Mr Major if his failure to sack Mr Lamont brings his leadership into question. 'This is pure speculation and mischief-making,' he said.

But, although he was one of several MPs not calling for Mr Lamont's removal, he said the Government should overhaul the policies that were 'clearly unacceptable to the electorate' and which had caused people to lose jobs, homes and businesses. 'What the Government now want us (the Maastricht rebels) to do is to say that we will unite with them but around those same cranky policies.'

As Mr Clarke repeated his regrets about being 'driven out' of the ERM, another senior backbench Tory on the right of the party said there was no point in making Mr Lamont the sacrificial lamb over his ERM policy if his potential replacement would take Britain back in.

'It would solve few problems, because most of his (Mr Lamont's) policies are John Major's policies.'

A Maastricht referendum, by contrast, would solve 'a great many', he said.

While talk of 'stalking horses' was dismissed as premature, one Conservative Association reported that its grass roots no longer trusted the judgement of Mr Major, Mr Lamont, or the Government as a whole.

John MacGregor, the Secretary of State for Transport and a possible contender to replace Mr Lamont as Chancellor, decided last night to break off a visit to Norway and Sweden, where he is looking at road pricing schemes.

In a surprise move, he will return to London this afternoon to vote in the debate on the imposition of VAT on energy bills.

City indifferent, page 20