Firing Lamont: He began to worry when he saw the lights burning late at Number 10. Donald Macintyre and Stephen Castle on the final hours

DURING Michael Portillo's 40th birthday party at the elegant Spanish Club in Cavendish Square, London, on Wednesday evening, Norman Lamont did not behave like a man about to lose his job. He stayed till near the end, drinking and chatting with guests who included Baroness Thatcher, Michael Heseltine and Clive Anderson.

And, for several minutes he talked to Edward Leigh, the young Thatcherite parliamentary under-secretary at the Department of Trade and Industry.

Did the Chancellor expect a reshuffle, asked Leigh. Lamont responded with fierce denunciations of the press and its reshuffle speculations. 'British papers are the worst in the world,' he said. They were obsessed with personalities. 'And in a week's time, when there has been no reshuffle, they won't apologise.'

It was only after he left the party to go home that he had his first premonitions. As he entered Downing Street and passed No 10, he noticed that, unusually for the time of night, the lights were still on. More sinister still, the official car of Richard Ryder, the Chief Whip and one of John Major's closest confidants, was parked outside. Lamont was sufficiently worried to telephone a friend; but, he confided, even if there were a reshuffle the following morning, he thought that it might not involve him.

Just after 9am the next day, Lamont received the fateful call, asking him to slip next door to see the Prime Minister at 9.15. He was the first Tory Chancellor to be sacked in 31 years. Later that morning, Leigh - with whom he had discussed the newspapers' supposedly inaccurate speculations the previous evening - was also sacked.

Had the two men been at another party that evening, they would have been closer to the Major-Ryder secret, though probably none the wiser. Sir Norman Fowler, the party chairman, was hosting a reception at Tory headquarters in Smith Square to mark the forthcoming Tory women's conference. In a short speech, he made no mention of the reshuffle talk that was already engulfing Westminster. Instead he lavished praise on the outgoing vice-chairman for candidates, Andrew Mitchell, for improving the quality of prospective Tory MPs.

Then he agreed to say a few words to an impatient television crew. It was an awkward moment. Fowler knew that Lamont, his friend from Cambridge days, would be out of his job within 24 hours. If he had refused to speak the game would have been up. A consummate professional, he somehow managed to make soothing noises without lying: 'The Chancellor's been doing a very good job and, er, that's about it,' he said. 'Everyone should just calm down a bit and just allow things to take place.'

Only in retrospect do his words seem pregnant with meaning. Shortly afterwards, Virginia Bottomley arrived: Fowler broke off a conversation, put his arm round the Secretary of State for Health, walked her into the middle of the room and chatted earnestly, and unheard, with her for a few moments.

That, too, may have been a sign that something was afoot. Certainly, Fowler has been widely fingered as Lamont's assassin. And, certainly, too, his bleak analysis of the Tory party's political fortunes after the Newbury by-election helped to push Lamont's political career down the final slipway.

But the reasons behind Lamont's dismissal were a good deal more complex than that. As one senior party source said of the accusation that Fowler had done for his old friend: 'It just isn't true. It's like Murder on the Orient Express. You know: 12 stab wounds, 12 daggers, and 12 wielders of the knife.'.

TO understand the events that led up to last Thursday we must go back more than eight months to 16 September 1992 - and British withdrawal from the European exchange rate mechanism (ERM). Even Lamont's friends wondered last week if it would not have been in his best interests - and the Government's - for him to have left the Treasury then. The obvious parallel was James Callaghan, who had moved to the Home Office after devaluation in 1967, rebuilt his career and eventually became prime minister.

In an interview with the Independent on Sunday before last April's budget, Lamont said that the Prime Minister never asked him to go and that, as Chancellor, he believed he had a job to do. But among his own private circle he went further. Britain's ERM entry had been Major's policy, not his. Why should he go as a result of its failure?

But, people asked, had not Callaghan been carrying out Harold Wilson's policies in the same way? Ah, Lamont replied, but Callaghan had been broken by the events leading up to devaluation; he wanted to get out. Lamont had not been panicked by the collapse of the pound before Black Wednesday; indeed it left Britain with no choice but to operate the policy that he, as a Euro-sceptic, had wanted in the first place.

Hence his chirpiness after Black Wednesday - when he reported himself in Washington as 'singing in the bath'. It would have been the cruellest of ironies to go just at the time when he was comfortable with the policy.

All this made a sort of sense. But politics does not always work with the internal logic that its leading practitioners wish on it. First, while Lamont had never had a particularly good press, it worsened visibly after Black Wednesday; it worsened further - and wholly unfairly - over the Thresher affair. It worsened again after the row over the payment by the Treasury of legal fees in connection with the eviction of 'Miss Whiplash' from the Lamonts' Notting Hill Gate home.

Secondly, Lamont's task was made more difficult at the turn of the year when Downing Street officials travelling back from Washington made it clear that Major was still keeping his options open for a reshuffle. Thirdly, both Major and Lamont may have underestimated the impact of ERM withdrawal on the party itself. As one right-wing ministerial opponent of the ERM put it: 'The Tory party is nothing if not a nationalist party. This was a national humiliation whether you agreed with the policy or not.'

Yet, by the beginning of this month, with the economic indicators growing better by the day, the worst seemed over for Lamont. Senior cabinet ministers predicted confidently that there would be no summer reshuffle and that he would survive to deliver in December the first unified budget - in which fiscal and spending policy were to be combined in a long-overdue reform introduced by Lamont himself. Major did not want to be pushed by the press into a summer reshuffle, ministers reported. The Cabinet might even await reconstruction until 1994. On 6 May, the day of the Newbury by-election, a high ranking Downing Street official advised the Independent on Sunday to expect a fairly wide-ranging reshuffle of the junior ranks but no cabinet changes.

The by-election result - a rout beyond the wildest nightmares of even the most pessimistic party managers - changed all that. Almost equally important were the county council elections, which swept Tory councils - made up in many cases of the stalwarts of local constituency associations - from power. That weekend, cabinet ministers and backbenchers, as they returned to their constituencies, were shocked by the extent to which party workers blamed Lamont for the electoral disasters.

'Until Friday morning,' said one senior cabinet minister that weekend, 'I was convinced there would be no reshuffle; now I suppose I'll have to revise my opinion.' According to another minister, party activists were saying that, if Major did not move Lamont, 'he will be seen as a wimp'.

Major, according to one close friend, was still standing by Lamont at that stage. But wheels were beginning to turn. The cabinet meeting on 20 May was followed by a 'political cabinet' for which officials withdrew and Fowler, as party chairman, joined the discussions. The Downing Street briefing afterwards was bland; and one cabinet minister said it had just dealt with the need 'to co-ordinate television appearances'. It was true that Fowler had encouraged ministers to appear on television more often at weekends. Labour leaders - particularly Gordon Brown, the shadow Chancellor, - were doing too well in the weekend sound bites.

But Fowler's message in the cabinet room was more fundamental than that. Central Office had now analysed the Newbury result in some depth and drawn three conclusions. First, the electoral position was considerably worse than expected, but it was neither hopeless nor unprecedented. Second, a careful review of the Newbury campaign showed that it had not been at fault: whatever problems there had been had not been organisational. And that led to the third and most important conclusion: what had been at fault were, in the broadest sense, matters of policy.

The implications were not spelt out in any detail. And some policy changes were already under way: at education, John Patten was softening the policy on school testing and, at the Home Office, Kenneth Clarke was scrapping the controversial unit fines.

But, according to one party source, two further inferences could be drawn. First, the Government had to appear more humble. Second - a message not lost on several members of the Cabinet though it appears to have been on Lamont himself - a reshuffle was now necessary.

It looked, for example, as if Paddy Ashdown's message in the run-up to Newbury that a 'vote for the Conservatives will be a vote of confidence in Norman Lamont' had been more telling than anyone realised at the time.

According to Downing Street sources, it was on the day of Fowler's analysis that Major decided to reshuffle the Cabinet. The same source, asked if Lamont's own position had been discussed round the table, said, in a neat insight into the ways of government: 'God no. Norman (Lamont) was there.'

That evening, Lamont wound up the debate on the third reading of the Maastricht Bill. Lamont is - or rather was - one of the best wind-up speakers in the Commons, and it was a good speech.

The Chancellor joined the whips in their office off the members' lobby for a glass or two of champagne and went on to Shepherd's restaurant in Marsham Street for a light supper of scrambled eggs, smoked salmon and mineral water with two journalists and his 26-year-old special adviser David Cameron. He was tired and a little subdued - returning at one point to his theme that the British seemed obsessed with personalities and not with real politics. He had no intention, he said, of reading Alan Clark's memoirs.

He also reflected on the right level of public spending for a civilised country - saying that he could not agree with those on the far right who wanted Britain to privatise the education system.

There was no talk of reshuffles. But by then, if Downing Street is to be believed, his fate may have already been sealed.

Cameron, politically mature beyond his years, fought a doughty campaign for his boss but one that was free of hype or dishonesty. He tirelessly told MPs and journalists up to the last minute that Lamont was hard at work on his planned unified Budget and was determined to give it.

His boss was also fighting back. On 18 May Lamont was entertained to lunch at the RAC Club by two political editors, Gordon Greig of the Daily Mail and Trevor Kavanagh of the Sun. As the Mail revealed last Thursday, the Chancellor, over dressed crab and champagne, appeared supremely confident. Leaning forward, he said: 'I am only going to say this once. I shall be delivering the next Budget. I think I'm the only one capable of doing it because it is such a huge exercise.'

The following day, 19 May, the papers used the usual lobby conventions to report Lamont's mood. In a story headlined 'I'm staying put, boasts Lamont', the Sun reported that the Chancellor had told friends he was staying at No 11. 'Friends of the Chancellor', said the Mail, 'say he knows where the bodies are buried from the mistakes made leading up to the election and the exchange rate mechanism fiasco.'

That weekend, if Lamont's fate was not already sealed, new evidence of unrest in the constituencies must have made his departure inevitable. Fowler travelled to Wigan to address the north-west area association. According to one source, he was given an 'ear-bashing' by local party officials on economic policy - not least the Chancellor's decision to impose VAT on domestic fuel.

The exact sequence of subsequent events remains shrouded in secrecy. But, by mid-week, Lamont's closest aides had learnt, from the now electric Whitehall grapevine, that a meeting - probably on Monday night - had been held between Ryder, Fowler and the Prime Minister. There was no word of what had been discussed, but it looks very much as if that was the meeting where the reshuffle and its general scope and timing were finally agreed.

The advice from Fowler and Ryder was that there was no point waiting until July - in the words of one senior party figure, that 'if it were done it was best done quickly' - and that Kenneth Clarke was the ideal replacement for Lamont. Although Douglas Hurd was more remote from the fray, it is now clear that, as the other senior disinterested party figure, he was also consulted privately by Major and was in accord.

Westminster was now thick with rumour and speculation. Because David Hunt's Westminster home was advertised as for sale in the whips' office, several MPs assumed the Secretary of State for Wales (as he was until Thursday) intended to quit the Government. The word went out from one whip to a minister potentially on the up- escalator: 'If your Secretary of State is going to put in a good word, he had better do it quickly.'

What hardened the speculation still further was a singular scoop by Michael Brunson, ITN's political editor. In the 5.45 bulletin on Tuesday night Mr Brunson cautiously said that, all things being equal, he did not expect an imminent reshuffle. But, by the main bulletin at 10pm Brunson had changed his tune. He had been rung, he announced, by a 'senior minister' to correct his earlier report and to tell him that indeed there might well be a reshuffle.

The question of who that senior minister could have been dominated much of the discussion at Fowler's little party the following night. (Fowler, not being himself a minister, was absolved).

Events now moved with surgical swiftness. Major's 9.15am interview with Lamont, the man who managed his campaign in November 1990 and without whose support he might never have become Prime Minister, was undoubtedly the most painful of his career. To adapt one of Hurd's favourite phrases, it was 'the mauvais quart d'heure' to end all 'mauvais quarts d'heure'.

The two men met alone and only the sketchiest details have yet emerged of what took place. But Major evidently made clear how difficult he found it; he dwelt for some time on Lamont's achievements as Chancellor and - although the two men have never been personally really close - how much he liked him. He pressed him to take the middle-ranking Environment portfolio. Lamont does not appear to have spoken at length, but in the probably understated phrase of one friend, made clear how 'deeply disappointed' he was.

One question that immediately arises is why Major did not call in Lamont the evening before for a whisky and discuss it more informally rather than confront him with an immediate choice between demotion and dismissal in the morning. One senior source had the answer: 'Norman was already getting pretty overwrought by this stage of the week. He might have stormed out and the television news would have been full of news about a botched reshuffle. It could have been a disaster.'

Lamont made it clear that, if he was not going to deliver a second 1993 Budget, he would leave the Cabinet. With Cameron at his side he returned to No 11 and told his wife, Rosemary, before telephoning his mother in Grimsby, thus giving the Grimsby Evening Telegraph its remarkable world scoop. He returned to the Treasury, cleared his desk, and resisted the freely proffered advice of those officials closest to him that he should respect convention and write the normal letter of resignation to the Prime Minister.

After lunch alone with Cameron at Toto in Chelsea he returned to an awkward, if emotional, leaving party for about 40 civil servants. Sir Terry Burns, the permanent secretary, made a farewell speech; Lamont paid a handsome tribute to 'the best civil service in the world', adding that he knew civil servants often carried the can for mistakes made by ministers.

Then Lamont left to visit his son Hilaire at school. 'He said several times his main worry was how it would affect the children,' one Treasury official said.

THE CENTRAL question that remains is how far last week's sacrifice of Lamont, and his replacement by Clarke, now the Cabinet's undisputed big hitter, will pave the way for the Government's and Major's political recovery.

The optimistic Tory view is that, with Lamont removed, a line has been drawn under the Government's failures. One senior minister said: 'We have thrown Norman to the wolves and put the best performer in government into the Treasury. What we have to do now is to re-establish the collective will to govern. We have to fight.' According to this minister, the Treasury emerges as a more powerful force, with Clarke and his right-wing deputy Michael Portillo forming a potentially unstoppable alliance.

While Lamont's weakness inhibited the Treasury's battle to reduce spending, Clarke has a mandate from the Prime Minister, and the temperament, to get tough. Another minister added: 'You have to go back to the days of Lawson, Howe and Hurd for such a heavyweight combination.' Moreover, in a refinement of this view, Clarke, far from threatening Major's leadership, now sinks and swims with the Prime Minister. If he is a successful Chancellor he helps Major to a second general election victory; if he fails, he cannot be a threat.

There are, however, at least three significant caveats. The first concerns grumbles within the party about the reshuffle itself. This goes beyond the professed annoyance by some on the right at the promotion of Clarke, a pro-European on the left of the party, to the second most important job in the Cabinet.

It is also apparent that, for all the Downing Street talk about 'refreshing the administration', this was a Lamont-centred reshuffle. There is only one new face in the Cabinet (the right-leaning John Redwood) - and had the Chancellor accepted the Environment job there would have been none at all. True, David Hunt, the new Secretary of State for Employment, will now play a leading role on economic committees, though his promotion is not as great as he might have expected. But, otherwise, the faces are striking for their familiarity.

Second, there remains the question of what Lamont himself will do next. This weekend it appeared that he was undecided over whether to make a resignation statement in the Commons, and, if so, how explosive a statement to make.

His capacity to wound remains uncertain, but his dismissal will certainly provoke some sympathy, particularly on the Eurosceptic right. He could talk about the frictions over interest rate policy before the general election, about the run-up to Black Wednesday and perhaps particularly about Major's conduct of economic policy immediately aftewards. Even if he avoids outright criticism in his resignation statement there is still the possibility that he will save it for a book - perhaps to coincide with the potentially dangerous period of next year's party conference.

Thirdly, there is the question of how far his removal leaves Major exposed. If the three holders of the main offices of state perform well, but the party's fortunes do not recover, then there is no one else to take the blame.

'Imagine this,' said one ex-minister, 'Clarke has to put taxes up in April, the London borough elections are a disaster in May, we lose the European elections. Then you have all the conditions for a leadership election next November.'

Another influential Tory even went as far as to say: 'The winners from last week remain Hurd, who is impregnable, Clarke and Portillo, whom Clarke will have to back on public spending. The losers are Major and Lamont.'

That may be a gross exaggeration, but it is impossible not to recall the remark made by Selwyn Lloyd to Harold Macmillan when he was sacked as Chancellor in 1962. Lloyd, who was as angry at his dismissal as Lamont is now, compared himself to Strafford, who was sacrificed in vain by Charles I. Macmillan resigned the following year, albeit from ill-health. Major, and his closest supporters, must hope fervently that the curse of Selwyn Lloyd does not strike again, 31 years later.

(Photographs omitted)