What Major really thinks of the Chancellor next door

TWO WEEKS before Nigel Lawson resigned over differences with Margaret Thatcher, the Labour leader, John Smith, taunted the Chancellor with the Neighbours theme tune: "Everybody needs good neighbours ... with a little understanding ... that's when good neighbours become good friends."

In politics, as in soaps, plot lines can be repetitive when it comes to the past and present occupants of numbers 10 and 11 Downing Street.

Since then two other Chancellors, Geoffrey Howe and Norman Lamont, have lost their jobs as occupants of Number 11 Downing Street after falling out with Number 10.

After Mr Major's pointed refusal to back Kenneth Clarke over a single European currency last week, could Mr Clarke be heading for the ranks of disgruntled ex-Chancellors?

The tension between Mr Clarke and Mr Major marks a significant change. In the aftermath of the 1992 exchange rate mechanism dbcle, Mr Clarke was the only Cabinet minister fielded by Downing Street for big TV interviews. At the 1993 party conference Mr Clarke defended the Prime Minister vigorously. Last week, by contrast, the Chancellor was locked into Mr Major's formulation that "a single currency would raise significant economic, political and constitutional issues", apparently contradicting Mr Clarke's speech a week ago.

Ominously the disarray has caused a run on the pound. One senior Tory said the City seemed "to have decided that the election is nearer than they thought . . . and that with the Chancellor apparently in disagreement, Major's position is rather unstable".

Relations have been strained since the run-up to last autumn's Budget, when the Chancellor insisted on doubling VAT on domestic fuel. There were also quibbles over the timing of interest rate rises.

Mr Clarke's difficulties are exacerbated by the fact the Mr Major is a former Chancellor.

There is also a striking contrast in style. Mr Clarke made his mark as a flamboyant, plain-speaking politician at the Department of Health, where he regularly held ministerial meetings in the Pimlico Tandoori. One civil servant recalls an evening on the town drinking seven pints of lager and eating a curry with the minister - who then returned to work on his red boxes. A government source said: "He [Mr Clarke] is rumbustious. John Major is a bit more fastidious."

But the real difficulties have been over Europe, and in particular over the single currency. Yet the Chancellor's position is perfectly honourable as a long-time pro-European.

It is Mr Major, after all, who has moved in the last year, steadily in the direction of the Euro-sceptics. As one source put it: "When he was elected in 1990, Major seduced the right, then every move he made was towards the left. Now he has lurched back to the right again."

Mr Clarke has tried to stem the drift, notably when he and the Foreign Secretary, Douglas Hurd, pushed hard for legislation over European finance to be a confidence issue last November. The result was that eight MPs were deprived of the whip and a ninth resigned it voluntarily.

When Mr Major announced, two weeks ago, that his Chancellor would elaborate on further hurdles before sterling could enter a single currency, Mr Clarke was taken aback that such billing should be given to a speech then not written.

The relationship has not been helped by the constant internal battling. As one ex-minister put it: "It is not unnatural that big players like Clarke and Heseltine should want to remind people that they are in big jobs with relatively secure positions."

This is the nub of Mr Major's problem. The pro-Europeans can command the support of up to 90 Tory MPs, making Mr Clarke no more sackable than Mr Portillo.

Last week relations seemed to be improving; on Wednesday Mr Clarke left a dinner at the Savoy for a nightcap with the Prime Minister.

Mr Major's allies hope that, as a result of last week's Cabinet vow of silence, the debate will be carried through by proxies. That - optimistic - scenario will be put to the test on Thursday when Mr Clarke addresses the Young Conservative Group for Europe. No great pronouncements are expected ... but Conservative Central Office is not planning to invite the press.

Alan Watkins, page 19 Worthless pound, page 21