Don't rule out a euro vote this term, says Labour's chairman

Charles Clarke, the new chairman of the Labour Party, said yesterday there could still be a single currency referendum before the general election and rejected calls from Gordon Brown's closest aide for the issue to be kicked into the long grass.

In an interview with The Independent, Mr Clarke insisted the euro would be the central issue of the current Parliament. "I don't think there is any doubt about that. The idea that we go through the whole Parliament with no dimension to Europe again is – to put it mildly – unlikely," he said.

Mr Clarke distanced himself from the recent speech by Ed Balls, the Treasury's chief economic adviser, who told Labour supporters the party should avoid an early referendum, o keep the Tories divided on Europe. Mr Clarke said: "The argument on the referendum will not be driven by political considerations of that type. It will be driven by our assessment of the national interest."

He insisted there was "no contradiction" between his comments and Mr Balls' call for Labour to focus on public services rather than Europe in its second term. "The electorate's main judgement on us will be based on two things – how we run the economy and how we deliver investment and reform in public services. Does that mean that Europe is not an issue? No, it certainly doesn't."

Mr Clarke, a former chief of staff to Neil Kinnock, was one of a clutch of Blairite ministers promoted after the election and who, according to Blair aides, have tilted the cabinet balance away from Mr Brown.

Admitting that his own instincts put him in favour of joining the euro, Mr Clarke said: "Constitutionally, I don't think there is a bar. Politically, I think it is very much in our interest to be at the heart of Europe. Economically, I think we genuinely have to look at the pros and cons; that is what the economic tests are about."

Despite the signals from the Brown camp that the public will not vote on the euro in this Parliament, Mr Clarke insisted: "It is certainly possible we could have a referendum ... If the economic tests said it was right to do it, then I would like there to be a referendum."

He agreed the election of the pro-euro Kenneth Clarke as Tory leader could increase the chances of Tony Blair calling a referendum. "It is true that the general political conjuncture is an important consideration in thinking about winning a referendum. But we are not going to take decisions about joining the euro which are not intimately linked in to our economic assessment."

Mr Clarke has an important role in Mr Blair's new team as a bridge between the Government and the Labour Party. Yet he has had an unexpectedly bumpy start: despite the landslide election victory, the mood among Labour MPs and the trade unions is fractious.

He acknowledged there was "unease", saying: "It is certainly the case that people do feel uncertain about where we are going and what we are doing. They are trying to clarify what it means for them individually and what it means for the party and the policies.

"There was no sense of the election being a defining moment. Tony Blair said he felt like a prize fighter dumped in the ring who asks where the opposition is. There was no catharthis, no sense of a battle taking place."

The postponement of the election date from May to June also caused problems for Labour, leaving the Government with just 36 hours to allocate the membership of select committees. Mr Clarke insisted the recent bungled plan to sack two select committee chairmen, Gwyneth Dunwoody and Donald Anderson, was not an attempt to stifle dissent but to get the best people for the job.

His mission includes ending Labour's "command and control" image. "I think control freakery isn't a good picture," he said. He hoped for a "mature debate" on policy – but, crucially, without descending into the divisions that so damaged Labour in the past.

Mr Clarke has also had to smooth ruffled union feathers over the plans set out in Labour's manifesto to increase the private sector's involvement in public services. "Some people certainly felt it was overspun and therefore they responded to it," he conceded.

He criticised union leaders, particularly John Edmonds of the GMB, for saying the plans would be like putting Railtrack in charge of schools and hospitals. "It's nonsense," said Mr Clarke. "If you buy an operation at Bupa or a school place at Eton, that's privatisation. If you use the private sector to enhance the delivery of public services, that's not privatisation."

Mr Clarke said the involvement of the private sector would "certainly be on the margins", with the NHS still delivering health care while schools would still be run by LEAs or governors. "The question is: how do you maximise performance and get more money in? If you are going to accept that kind of rhetoric [about privatisation] you might as well say we are not going to discuss any form of change at all."

Mr Clarke is attracted by the idea of specific taxes, such as an NHS tax, to help persuade voters to fund higher spending on key services. "I think it is worth looking at hypothecation in all areas. It has advantages of transparency. I am not suggesting it is on the Government's agenda. I don't think it is at the moment, but I think it is an issue worth looking at."

The new Labour chairman also has some radical ideas for the party. He believes there is a strong case for a cap on individual donations to political parties to ensure they are not in the pockets of a few millionaires.

A figure of £100,000 will be considered by the Electoral Commission.

With only 1 per cent of the public bothering to join parties, Mr Clarke is considering an American-style "register of Labour supporters" in an attempt to draw ordinary people into dialogue with the party. He said: "It is particularly a problem for Labour in its heartland seats; in our inner cities we have not had sufficient dialogue with the electorate."