Enter Lady T, touching raw Tory nerves

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Political Editor

Baroness Thatcher yesterday brutally exposed the debate in the Tory party on the direction of domestic and European policy by suggesting her legacy was "being undermined" by John Major's administration.

Lady Thatcher touched the raw nerves of a jittery Tory party by going out of her way to highlight cuts in mortgage interest relief as one of the key reasons for the Tories slump in popularity before declaring: "These are true Conservative things and we must get back to Conservative policy."

The remarks, on Radio 4's Today programme, coincided with fresh speculation that Mr Major - who is threatened with a leadership challenge in November - will seek to overcome Treasury resistance to mounting backbench demands for an emergency package to help homeowners in the Budget.

Allies of the former Prime Minister reinforced her declaration that a leadership contest would be "most destabilising" by suggesting that far from wanting to see Mr Major removed, she was acting as a candid friend to her successor to help him stave off the threat of a challenge which could see Michael Heseltine installed in No 10.

Nevertheless, it was candour rather than friendship that was most in evidence during her interviews yesterday. She said she was "delighted that the Prime Minister is getting more and more sceptical". But she added that she had only agreed to join the European Exchange Rate Mechanism "because I was finally the only person in the Cabinet resisting it and I knew John Major wanted it".

In the face of her declaration that she was "absolutely" against the single currency, Downing Street clung to Mr Major's speech in the Commons on 1 March in which he insisted that the Government would keep open its options.

But Lady Thatcher's onslaught on monetary union will boost the morale of leading Euro-sceptics who will today press Mr Major for a commitment not to enter a single currency in the next Parliament.

"The lost saviour", page 2

Andrew Marr and Alan Clark on the Thatcher legacy, page 19