Asked whether he had not in effect devalued, Mr Lamont told ITN last night: 'We have not sought a devaluation . . . The pound is currently floating, and we'll have to see what level it finds.'
Earlier, a Number 10 source said: 'We haven't devalued; we have merely suspended our membership of the ERM. The pound is lower than it was.'
With Conservative MPs and the City casting doubt on the ability of Mr Lamont to survive as Chancellor, Mr Major led the fight-back to keep him in post, and Mr Lamont said: 'I will not be resigning.' After an emergency session of Cabinet, he went on to chair a meeting on government expenditure cuts.
The Prime Minister told the Cabinet that Mr Lamont had acted with speed and courage. He added: 'The Chancellor should not be seen as an air-raid shelter.' That meant ministers should not allow Mr Lamont to take all the 'flak' - they were all in the same boat and tied to the same policy.
The message was underlined after Mr Major had sought the view of every member of Cabinet. The Number 10 source said: 'They all strongly supported the Chancellor and commended him on his
Kenneth Clarke, the Home Secretary and someone tipped as a possible successor if Mr Lamont goes, was last night asked on ITN whether the Cabinet had literally committed themselves round the table, agreeing: 'He goes, I go.'
He replied: 'We certainly did. It would be rather strange if we hadn't. He was carrying out the policy of the Government.'
But ministers and Conservative MPs were quick to pounce on two loose ends left open at the lengthy Cabinet session - the timing of sterling's return to the ERM, and the possibility of further interest rate cuts before next month's Conservative Party conference. Hopes ranged from reductions of 2 to 4 percentage points.
As for the timing of a return to the ERM, the Prime Minister's office said: 'We will resume membership of the ERM as soon as conditions allow.' But as John Townend, chairman of the Conservative backbench finance committee, said last night, that wording carried echoes of Margaret Thatcher's stalling formula before the October 1990 entry into the ERM - that sterling would go in 'when the time is ripe'.
Mr Major and Mr Lamont will face a strong challenge on the devaluation U-turn in a full-day Commons debate next Thursday. Gordon Brown, the Shadow Chancellor, said: 'The Prime Minister must explain why the very policy he said would be disastrous for inflation and competitiveness is now the policy supported by the Government.'
Although Mr Major and Mr Lamont had previously insisted that devaluation would create inflation, Number 10 said: 'It will still be important that sterling should be at levels which support the Government's anti-inflationary objectives.'
John Smith, the Labour leader, said: 'The Government has put the final nails in the coffin of its economic policies.'
Paddy Ashdown, the Liberal Democrat leader, told his party conference in Harrogate: 'When people find they cannot trust the most solemn words of our national leaders, that the pledges of the Prime Minister are worthless, that the Chancellor of the Exchequer is a man of straw, small wonder that they feel betrayed'.
But defending his actions, Mr Lamont told ITN that he had done everything possible to maintain sterling's parity. 'We were part of a whirlwind that was going across the exchanges.' He told the BBC: 'What I did was simple common sense. The decision I made was an unavoidable one.'
He insisted that the Government's policy of getting inflation down continued. 'I can assure you that having worked so hard to get this country to be a country of low inflation, I am not going to chuck it away just in a few weeks time. I refuse to do that'.
But one senior Tory figure argued that having lost the battle for the pound, 'we might as well take advantage of the situation and get the economy moving again'. He favoured an 8 per cent interest rate. Backbench demands for Mr Lamont's resignation continued. Some, who until Wednesday had backed the Chancellor, told whips that his credibility was shot. Despite the Cabinet endorsement, party managers were not certain he could survive. One well-placed figure expressed the hope he could go 'at a civilised time' well after the Commons debate.
Other mainstream MPs resisted public calls for Mr Lamont's resignation. George Walden, Conservative MP for Buckingham and a former minister, said: 'What we need is a policy, not a scapegoat.'
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