Winner by a short head: John Major held his ground on Europe but bigger hurdles lie ahead. By Donald Macintyre

ON THURSDAY night, Kenneth Clarke, the Home Secretary, helped himself to a glass of Krug as he arrived for the party in Lord Archer's third-floor suite at the Grand Hotel, Brighton. 'Who have you got for me tonight, then?' he asked with a broad grin. It was the second Lord Archer party. The first, on Wednesday night, had culminated in the now-famous slanging match between Mr Clarke and Lord Tebbit. Though both men were sober and neither lost control, the argument - over whether the Maastricht Treaty committed Britain to a single currency - was unusually robust and had just a touch of the bar room brawl.

The tension that night was palpable. Indeed, the Tebbit-Clarke confrontation began with an admission by the latter that the Eurosceptics might be getting the better of things. 'You're giving us a bloody good run for our money,' he said.

By Thursday, Mr Clarke could afford a measure of jocularity. It was clear by then that the conference would not be the disaster for the Government that had seemed possible when Lord Tebbit got his tumultuous ovation on the opening day. The Government was - just - winning the argument on Maastricht. The chances of getting the ratification Bill through the Commons were looking considerably better.

On Monday night, when the pound had fallen to a new low, John Major must have felt very lonely indeed. 'Last week,' said one ministerial aide, 'Labour was behaving as if it hadn't lost the election. And we're behaving as if we hadn't won.' As darkness closed over Brighton, one minister, walking on the seafront, quoted Ralph Waldo Emerson: 'Things are in the saddle, and ride mankind.'

In the end, it was not Mr Major who averted catastrophe - despite a closing speech that reportedly involved 22 revisions and a phone call to Chris Patten in Hong Kong - but a combination of support from Cabinet colleagues and blunders by Maastricht's opponents. Brighton was not a triumph for the Government. But it could have been far, far worse.

LORD Tebbit had not originally planned to speak at all. He was annoyed and frustrated by the Prime Minister's decision to bring forward the Maastricht Bill. But he hesitated long and hard, believing plausibly that he might 'blow the party out of the water'. It was not until Tuesday that he put in his request. The party leaders had already decided that if any of the 'big beasts' of the Tory past wanted to speak they would be allowed to do so. As one Cabinet minister put it: 'The damage Norman was capable of doing on the conference floor was outweighed by the pressure that would have built up if he had been suppressed.' And Lord Tebbit swiftly made it clear that, if he was not called, he would go public on the decision to gag him.

From one of the most devastating orators in British politics, the speech was a triumph. Lord Tebbit's message - that British voters wanted policies for 'Britain first, second and third' - was rapturously received despite the deadly personal attack on the Prime Minister. But, almost immediately, the tide began to turn.

Douglas Hurd is not a natural conference performer. He is apt to irritate audiences with an air of de haut en bas and he has a distaste for the chauvinistic hysteria of a party conference. But, on Tuesday, in the debate on Europe - told firmly by aides that the speech mattered more than any he had delivered to a conference - he rose to the occasion.

Warning of the dangers of the party splitting itself as it had over the Corn Laws and of Britain standing aside from decisions affecting the 'security and prosperity of Europe', he was lucid, passionate - even, dare it be said, prime ministerial. The neo- Thatcherite and xenophobic young Conservatives who were enraptured by Tebbit did not join in the ovation for Mr Hurd. It, therefore, lacked the same fanatical edge. But it turned the day for the Government.

That, perhaps, reflects the lack of ideological fervour among the broad base of Tory representatives. One minister described the silent majority: 'Most of them come to a conference only once; they want to enjoy themselves.' Another said: 'They go to the ball, they treat it as a big social event and they say to each other wasn't Norman good and then wasn't Douglas good. Then they pick up the Daily Mail and are amazed to find all the headlines about splits.'

But, at least, Tuesday had some kind of cathartic function. It also helped the Government to reinforce its message within Europe that it is constrained by party divisions. In a meeting with Portugese ministers the following day, Mr Hurd did not have to spell out the importance of limiting the European Commission's powers of interference at the Birmingham summit; courtesy of Sky News and ITN's cable service, the Portuguese had watched the debate, spellbound.

Lord Tebbit, as well as provoking Mr Hurd into one of the best speeches of his life, had another side-effect. His performance completely eclipsed the speech on the fringe by Kenneth Baker. Mr Baker's speech was potentially the more important, since, unlike Lord Tebbit, he is still in the Commons, and can therefore directly influence the Maastricht vote.

Cabinet ministers differ over Mr Baker's credibility as the new leader of the Eurorebels. His defenders insist that he expressed his reservations on Maastricht in private conversations with Mr Major and Mr Hurd. 'My answer to that is, frankly, balls,' said one Cabinet minister last week. 'Don't press me on Baker. I just can't find the words.'

Here, so the hostile account goes, was the ex-Heathite, who feared that he would never get anywhere under Mrs Thatcher, then refused as party chairman to see that her time was up, and then effusively congratulated Mr Major on his negotiating triumph at Maastricht. 'If you think long- time sceptics like Nick Budgen and John Biffen will trust him, you don't understand the Tory Party,' said one senior Tory. But, whatever the truth, it was Lord Tebbit, safely elevated to the Lords, and not Baker, who grabbed the headlines.

A third factor helped the Maastricht supporters. Lady Thatcher decided to publish her broadside in the European on the eve of her arrival at Brighton on Thursday. It did not go down well. She had agreed to write the piece for conference week two months ago but consulted none of the politically savvy friends who might have stopped her.

Sir Tim Bell, one of her closest confidantes, advised her not to go ahead. By Thursday morning, her office had let it be known she also wanted to say 'three sentences' from the platform. But Lord Wakeham and Norman Fowler, escorting her into the conference, discovered, to their great relief, that she had no intention of speaking. John Mason, the conference chairman, checked and got the same answer. She confined herself to a series of muttered imprecations during the economic debate, barely audible to those around her.

Her ovation was wildly enthusiastic. But not quite as much as last year. There were even - unthinkable a year ago - a few boos. A few representatives remained seated, defying exhortations like 'Remember the Falklands' from those around them. 'The affection is still there,' said one Cabinet minister, 'but they see her as an elder statesman now.' David Hunt, the pro-European Welsh secretary and Deputy Chief Whip when Lady Thatcher was Prime Minister, dared to recall to a Tory Reform Group meeting on Thursday evening how often she had asked him wonderingly about rebellious MPs: 'How can they be so disloyal, David, how can they be so disloyal?'

ACCORDING to one analysis, the error of the Eurorebels had been to concentrate on Maastricht, an issue which has two disadvantages. First, its meaning confuses: it can be presented both as a brake and an accelerator on the road to European union. Second, it does not, on the whole, engage those outside the political classes. 'It would have been better for them to concentrate on the economy and the ERM,' admitted one Prime Ministerial aide.

And it is on the latter issue that the fault-lines within the Cabinet are most serious. The divisions may be similar to those on Europe but, as the economic debate on Thursday showed, the despair caused by the recession creates a national constituency for those who want interest rates down at virtually any price. 'Economic policy is all to play for,' said one Cabinet minister emphatically. In private, ministers were anxious to discuss their divergent views on economic policy, suggesting a split potentially as deep as that between the Thatcherites and the 'wets' in the early Eighties.

The division is between those who describe Black Wednesday as a 'setback' and those who refuse to use the word. Between those who argue that sharp interest rate cuts are urgent and those who argue that they will stoke up inflation in the crucial period before the next general election. Between those who believe that the exchange rate has to play the critical role in defining monetary policy, and those who believe that other factors count. Between those who think that taxes may yet have to be increased and those who believe that such action would be fatal. Between those who believe - and there are now several Cabinet ministers in this category - that a 1 per cent rise in interest rates a week or two before the sterling crisis could have stabilised the pound and those who are, like Norman Lamont, 'singing in the bath' at Britain's departure from the ERM.

Consider this view from the middle-ranking ministerial right: 'What the Prime Minister and the Chancellor have to do is to convince they have a programme for recovery. And if it means bringing interest rates down to 7 per cent or 6 per cent, so be it. And we should stop worrying about whether the Germans and the French and the Benelux countries form a single currency on their own.' Consider the retort from a pro-European Major loyalist: 'Some people are not living in the real world.'

The critical question remains that of Norman Lamont himself. The afternoon after his speech, the Chancellor took a long walk on the beach. He had plenty to think about. The conventional wisdom has been that the Prime Minister could not sack the Chancellor. First, it would infuriate the Eurosceptics - especially since the pro-European Kenneth Clarke remains the most obvious replacement. Second, and more importantly, the ERM policy was the Prime Minister's not Mr Lamont's. As one minister put it last week: 'Norman is in the position of the Earl of Strafford. Strafford's execution led to that of Charles I'

The Brighton speech was never going to be easy. He was furious that one side of the auto-cue broke down, making it more difficult to answer points made during the debate. But Mr Lamont is trying to ride the two horses of political popularity and monetary prudence. In his conference speech he rode the first horse, adopting a negative tone on ERM. In his simultaneous letter to the Treasury select committee, designed for consumption in the markets, he rode the second, pledging to take Britain back into the ERM. One Cabinet minister on Thursday, who had not heard the Chancellor's speech, told an interviewer that the Government 'certainly' intended to return to the ERM. 'But that's not what the Chancellor said,' came the reply. To his intense relief he found the select committee letter slipped under the door of his hotel room when he got back to the Grand Hotel.

Mr Lamont shows no sign of resigning of his own accord. But, according to one senior Cabinet minister, Mr Major is waiting and watching to see whether the Chancellor can restore his credibility in the City. If he survives the hurdles ahead - tomorrow's select committee performance, the Mansion House speech at the end of the month, the Autumn Statement - but fails to recover his reputation in the markets, then Mr Major's preference would be to move him in a post-Maastricht Bill reshuffle.

The markets, however, are not Mr Lamont's only problem. The public spending round is the other.

The Cabinet is signed up to a target of pounds 244.5bn. But the recession has led to a huge rise in social security payments. So there is less money for other forms of expenditure. The argument about what should be cut will be protracted and ferocious. It will end in what one senior minister predicts will be an 'almost continuous session of the Cabinet'. Under the new system for determining spending, the options are debated by a heavyweight Cabinet committee ED(X) rather than in bilateral talks between the Chief Secretary and the spending ministers. The Treasury, therefore, can expect to hit the target.

The trouble with ministerial colleagues in spending departments will begin if Mr Lamont, in a last-ditch bid to impress the markets, tries to cut the total still further, arguing that pounds 244.5bn is actually a ceiling.

His fellow members of ED(X), however, will ensure that the Treasury does not have all its own way on where the cuts should fall. As one Cabinet minister put it: 'We're not going to be in the position with the Maastricht Bill not yet completed, and trying to hold our ragged army together, of suddenly having thousands of letters going to MPs because of one of the Treasury's cracked schemes for saving money.' Another said: 'We're actually going to find that we talk about economic policy which is what I always rather naively thought Cabinets were supposed to do.'

BUT WHAT is the economic policy and how will it affect the public spending round? That remains John Major's biggest headache and one that Brighton did nothing to solve. His brave decision a week last Thursday to force through a Cabinet commitment to an early return of the Maastricht Bill did much to help him at the conference. And his speech, though wrapped in British nationalism, was uneqivocal in reaffirming that commitment.

But it left many of the big questions unanswered, including the biggest of all: on which side of the fault-line on economic policy does Mr Major stand?

One of those who had a hand in the speech was Ronald Millar, the playwright, who performed the same service for Mrs Thatcher at the 1981 Brighton conference. Mrs Thatcher was then as beleaguered, if not more so, than Mr Major is now, with a deep recession compounded by a serious Cabinet rebellion. Mr Millar came up with the famous phrase 'the lady's not for turning'. He was unable to find a similarly crystalline phrase for Mr Major.

Many ministers believe that Mr Major is on the European side of the argument on the economy as well as on foreign policy. Yet, within minutes of the speech, a leading Eurosceptic was claiming that its language showed that 'he's on our side'. He has still not finally shaken off the aura of the Prince Regent, surrounded by powerful and sometimes ambitious barons.

Ahead lie the summits in Birmingham and Edinburgh; a public spending round that cannot fail to be politically unpopular; the still real possibility, for all the confidence among most ministers, that Labour and the Tory Eurorebels could defeat the Maastricht Bill; the fresh difficulties of dealing with a new and agile leader of the Labour Party across the Commons floor every Tuesday and Thursday.

John Major's party came through the conference last week intact, which looked far from certain at the beginning. To return to Emerson's metaphor, he is in the saddle. But his feet are not yet back in the stirrups.

From the mouths of Tories

'During the summer, a lady came up to speak to me. 'Mr Major,' she said, 'please, please don't let Britain's identity be lost in Europe.' ' John Major

'Maastricht is part of the vision of yesterday. It is time to set out the vision of tomorrow.' Lady Thatcher

'She hates Europe. She hates all Europeans.'

Sir Edward Heath

'We appear to have lost our way in the fog. We appear to have no captain and the purser isn't sure how he is going to finance the trip home.'

Dee-Dee Dobell, Yeovil cllr

'I spurn those politicians who suggest what they think is right is right, and what John Major thinks is right is wrong.' John Gummer

'If John Smith is the answer, what on earth was the question?' Michael Heseltine

'We Conservatives believe in the family. But the family is under threat from the Left.'

Peter Lilley

'It will mean another colossal row with the educational establishment. I look forward to that.' John Major

'Politics, like charity, begin at home.' Lord Tebbit

'Our party could break itself over Europe, with consequences which would deeply damage Britain and give comfort only to our opponents.' Douglas Hurd

'They (the press) love to wallow in the bad news - and then they ask: 'What are you doing to improve confidence?' '

Norman Lamont

(Photograph omitted)

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