Clarke blasts Eurosceptics

The splits in the Tory party over Europe were torn open again last night when Kenneth Clarke, the Chancellor, used a keynote speech to the City to repudiate the calls by Tory Eurosceptics to rewrite the terms of Britain's membership of the European Union.

As Mr Clarke took on the Eurosceptics, the Conservative Party leadership slapped down Bill Cash, the Tory MP who led 78 Tory MPs in support of his backbench Bill calling for a referendum on Europe, by ordering his European Foundation not to accept any further donations from Sir James Goldsmith's foundation.

The Chancellor's Mansion House speech was certain to infuriate the Eurosceptics who 24 hours earlier had made a show of strength in the Commons by voting for a referendum to restore powers to Westminster from Brussels.

Britain needed to retain an influential position in the EU, the world's largest single market, to take full advantage of its opportunities, Mr Clarke said.

"Let us make no mistake," the Chancellor said. "Those who would challenge the Treaty of Rome and challenge the Treaty of Maastricht would put that influence at risk." Those challenging the Treaty of Rome, which established the European Court of Justice, include Michael Howard, the Home Secretary, who has submitted a confidential Cabinet paper arguing for the powers of the Court to be reduced.

Mr Clarke's speech will be seen as a clear warning to Cabinet Euro- sceptics to back off.

The Chancellor also rejected calls from right-wingers, first revealed in the Independent last week, for Mr Clarke to slash income tax in the next Budget, to avoid handing a stable economy with sustainable growth to a Labour government.

"We are not pursuing a 1990s version of Reaganomics - slash taxes and hang the deficit in the naive belief that any tax cut will always generate additional revenue. Nobody wants that. In any case, to think that the electorate could be bribed by premature tax cuts is an insult to the intelligence of the British people," Mr Clarke said.

His remarks - trampling on Thatcherite tax-cutting principles - could lead to calls for his resignation. But they underline the extent to which Mr Clarke's patience with the policy of blocking EU business over the beef ban is wearing thin.

The pro-European MPs, led by Sir Edward Heath, were delighted by the warning from Alastair Goodlad, the Government Chief Whip, to Mr Cash that it was intolerable for his European Foundation to accept money from Sir James, who threatens to field candidates against Tory candidates at the next election.

After the meeting with Mr Goodlad, Mr Cash issued a statement saying the European Foundation wanted to ensure there were no grounds for any "alleged or perceived dependence on any particular political party or grouping".

Cash backs down, page 2