Right hails Portillo as next prime minister: Major at war with Tory press - Iraqgate ordeal looms - Council homes scandal spreads

LEADING right-wing Conservatives have openly embraced Michael Portillo as the next party leader after his speech on the dangers of cynicism, which provoked a new row over John Major's 'back to basics' policy.

The endorsement of Mr Portillo by Sir George Gardiner, chairman of the influential right-wing 92 Group, and Lord Parkinson, chairman of Conservative Way Forward, is certain to increase tension within the Tory party.

Mr Portillo's elevation coincided with a bitter row between Downing Street and two leading Tory daily papers over comments allegedly made by Mr Major during a dinner with journalists last Thursday.

Claims that Mr Major had talked of 'f***ing crucifying the right', reported in the Daily Mail and the Sun and denounced by Downing Street as 'malicious fiction', threatened a new war between the Government and the Tory press and exacerbated re-emerging divisions in the highest reaches of the Tory party.

The Tories suffered a new blow when it was revealed that the district auditor is investigating allegations that a second Tory flagship council, Wandsworth, operated a homes-for-votes policy in two wards.

Ministers will come under pressure tomorrow to authorise a district auditor's investigation to be widened to examine the policy operated throughout Wandsworth. Peter Hain, Labour MP for Neath and a long-standing resident of Wandsworth, has tabled a Commons early-day motion demanding a full inquiry.

Mr Portillo's endorsement as heir apparent came at the end of the Chief Secretary's speech to Conservative Way Forward on Friday night, in which he castigated opinion-formers in 'the British elite' for fostering cynicism and disrespect for the establishment. Sir George made a scarcely-coded reference to Mr Portillo's prospects of taking over at Number 10. 'We hope we can help you if and when you apply,' he said before the audience at the Grosvenor House Hotel in London. Lord Parkinson then said: 'If you can't read between the lines, don't listen to a George Gardiner speech.'

Yesterday, one leading right-winger confirmed that Mr Portillo had emerged as the 92 Group's clear favourite to succeed Mr Major and added that a leadership challenge in the autumn could not be ruled out. 'Portillo is undoubtedly being built up as the man to run with. He is a real runner in the right set of circumstances. Our job is to position him.'

His backers argue that Mr Portillo needs to raise his public profile and cultivate more Conservative backbenchers.

Sir George is no friend of the Major camp in the party. After the Maastricht row he was voted off the executive of the backbench 1922 Committee last year as part of a deliberate strategy by Major supporters.

Yesterday Mr Portillo returned to the offensive, telling Channel 4's A Week in Politics he had no regrets about Tory pronouncements on one-parent families and back to basics.

The stories in yesterday's Sun and Daily Mail also claimed that Mr Major identified Kenneth Clarke, the Chancellor, and Michael Howard, the Home Secretary, as potential challengers for the leadership and that Douglas Hurd, the Foreign Secretary, 'is only staying (in government) because I asked him to'. Downing Street angrily denied the stories yesterday. A spokeswoman said: 'We have spoken to everyone at the dinner. It is clear that the story is malicious fiction.'

One of the guests at the meal, Stewart Steven, editor of the London Evening Standard, said: 'Some politics was discussed in a very laid-back way, but what was attributed to him (Mr Major) is simply contrary to the mood of the occasion so I cannot believe he said it.'

But a Daily Mail spokesman said the paper 'stands by its political editor Gordon Greig's story 100 per cent'. It recalled that Greig had correctly predicted the resignation of Gus O'Donnell as the Prime Minister's press secretary at a time when Number 10 was denying it.

Amid the furore, friends of Mr Hurd moved swiftly to deny that he wanted to leave his job.

While he grapples with the renewed challenge to his leadership from the right, Mr Major faces fresh difficulties over the 'homes-for-votes' scandal in Westminster as details leak out of unpublished annexes to last week's deeply critical report by the district auditor.

One document, the agenda of a strategy meeting in Camberley in May 1988 which talked of 'dirty tricks', emerged yesterday. It showed that Dame Shirley Porter's ruling Tory group sought to involve Downing Street's policy unit in the alleged gerrymandering of votes in the borough. Hitherto, the Tory leadership has always insisted that it was not involved in the scandal.

Barry Legg, Conservative MP for Milton Keynes SW, has been implicated in the affair by the district auditor. Yesterday Teresa Gorman, Conservative MP for Billericay, admitted she bought the freehold of two Georgian houses close to Parliament in 1982 from Westminster council, but denies any impropriety. The properties, one of which was sold last year, are now worth nearly pounds 1m.

Sir Edward Heath, the former prime minister, writing in today's Sunday Mirror, says that, if true, the Westminster allegations are 'the heaviest blow the Conservative Party has had to take in living memory'.

Tomorrow, Mr Major faces a potentially-dangerous appearance before Lord Justice Scott's inquiry into 'Iraqgate', when his role in operating secret government policy will be closely scrutinised. He will insist that his part in the affair was unimportant, but this is unlikely to satisfy the inquiry. Critics say he misled MPs over the concealed policy shift on the export of defence equipment and dual-use goods to Iraq.

Mr Clarke and Michael Heseltine, President of the Board of Trade, have already said they will resign if the Scott inquiry implicates them in wrongdoing, and Mr Major will come under Labour pressure to give a similar assurance.

In further evidence of tension between Downing Street and the inquiry, officials confirmed that Lord Justice Scott had rejected government requests for changes in his arrangements for the investigation when it was set up.

The Government also faces trouble this week in the Lords, where its Police and Magistrates Courts Bill has its second reading. Lord Whitelaw, the former Home Secretary, has told other peers he will criticise aspects of the legislation.

(Photographs omitted)