Right-wing MPs are deeply suspicious of Mr Clarke, whom they see as too pro-European. They are demanding an unequivocal guarantee from the new Chancellor that Britain will not return to the European exchange rate mechanism and guarantees that ministers will not cave in over European working hours.
Mr Clarke will try to calm backbench anger by giving a clear sign that he intends to use his mandate from the Prime Minister to make spending cuts, rather than higher taxation, his favoured means of curbing the projected pounds 50bn deficit. With the crucial Christchurch by-election now likely to be called on either 8 July or 15 July, the Chancellor is expected to reinforce the Prime Minister's promise in Paris on Friday that Britain will not re-enter the ERM 'in the near future'.
But prominent MPs on the Thatcherite right yesterday demanded that he go further. One MP, Sir Rhodes Boyson, said that, in the context of ERM membership, references to the 'near' and 'foreseeable' future should mean '75 years'.
The rebels issued a thinly veiled threat to back the Opposition in a crucial Commons vote - on the Maastricht social chapter - before the summer recess unless they were satisfied with the Chancellor's assurances.
The backbenchers are also demanding that David Hunt, the strongly pro-European new Employment Secretary, should not compromise in a row looming this week on a Brussels directive. The directive, which would enforce a maximum working week of 48 hours, will be discussed at a crunch meeting in Luxembourg on Tuesday.
Ministers are resisting the proposals which Britain argues should not be brought forward as health and safety measures - which can be agreed on a majority vote. However compromise discussions, which would involve delegating conditions in some industries to national governments, are under discussion.
The right's offensive against Mr Clarke and Mr Hunt reflects the view among some MPs that the reshuffle will significantly strengthen the Tory 'wets'. James Cran, MP for Beverley and a leading Euro-rebel, said: 'The right has lost a Chancellor and gained a Welsh Secretary. The economic ministries - the Treasury, the Department of Trade and Industry and the Department of Employment are under the control of people to the left of the party.
Calling for Mr Hunt to take the working time issue to the European Court if necessary, Mr Cran said that if the directive is imposed in Britain the Maastricht Treaty's opt-outs - designed to protect national interest - would be exposed as 'nothing other than a fig-leaf'.
Sir George Gardiner, MP for Reigate, said the new Chancellor would enjoy the party's goodwill 'providing he forgets about re-entering ERM and takes a tough line on cutting the deficit'.
And a former adviser to Mr Lamont, Rupert Darwall, yesterday said Mr Clarke's arrival at the Treasury showed that 'the left of the Tory party has achieved the victory that the right thought it had won when John Major was elected leader'.
With even sections of the right split on whether taxes should be raised further than Mr Lamont had already planned for next April, tax increases cannot be ruled out. The Government's narrow majority means the Treasury has little hope of bringing spending below planned totals. But Treasury ministers expect Clarke to be rigorous in fighting to keep spending within those totals rather than raise taxes.
The post-reshuffle turbulence was compounded yesterday when the new Environment Secretary, John Gummer, blundered into economic policy. He gave an unexpected pledge that pensioners and other vulnerable people would be 'more than compensated' for the increase in VAT on fuel imposed by Mr Lamont in his March budget.
Whitehall officials swiftly restated existing policy - that an announcement on compensation arrangements for the controversial VAT increase will not be made until the summer.
Inside Story, page 18
Leading article, page 24
Christopher Huhne, Business
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