How Cabinet forged deal on a referendum

Concessions to Chancellor were key to Tory accord, reports Donald Macintyre

By the time Kenneth Clarke left for a trip to Southern Africa last month he was in a pretty bad mood. The most immediate cause was the reaction to a prominently reported but passing remark he had made in a Daily Telegraph interview that he was "sympathetic" to a single currency.

That can hardly have surprised those familiar with his views. But it was a convenient target for those Euro-sceptics for whom Mr Clarke was a favourite scapegoat. There was some discreet sucking of teeth from the Prime Minister's office.

It was against this background that the referendum issue came to the boil. It was raised at Cabinet by Douglas Hogg and John Major secured agreement for a Foreign Office paper to be prepared on a referendum.

Mr Clarke had always opposed referendums but would probably have been disinclined to push opposition to the limit had it not looked again as if the Government were running scared of the Euro-sceptics.

When he returned from Africa he was plunged into the frantic negotiations with Brussels on BSE. It was only this week that Michael Heseltine, Mr Major and Mr Clarke met to seal yesterday's deal. Mr Heseltine has been depicted as the deal's broker; those close to Mr Clarke say they saw no sign of that. On the contrary, Mr Heseltine's views appeared identical to the Chancellor's.

That underlines the scale of Mr Major's achievement in exercising his authority over the two most powerful members of his Cabinet. But it also suggests that Mr Clarke, who also had support from Sir George Young and Sir Patrick Mayhew, was not as isolated as he seemed.

Mr Major quickly found out Mr Clarke was in deadly earnest. He did not threaten a full Cabinet meeting with his resignation. But he made it clear to Mr Major that he was not prepared to be a member "of a Euro-sceptic Cabinet".

This helps to explain how he came to secure three conditions in those talks with the Prime Minister and his deputy.

According to one Whitehall insider Mr Clarke was "love bombed" by Mr Major over the last week or so, and relations between the two men seem genuinely warm again. But more immediately important were the terms attached to the referendum announcement.

The first was that it should apply only for the next Parliament. The rationale of the referendum pledge was therefore not that a single currency decision was such an epic one that it necessarily required a referendum; rather, that since the Tories would not, in the exceptional circumstances of the next election, have a mandate one way or the other on a single currency, the people's right to decide could only be met by a referendum. That left Mr Clarke's principled objection to referendums more or less intact.

Secondly, there would be collective Cabinet responsibility, so that Euro- sceptic ministers would have to risk their careers by resigning if they wanted to campaign for a "no" vote. Thirdly, the authority of Parliament would be reinforced by requiring it to pass a single-currency Bill before it went to a referendum.

There was also the wider, but equally important, question of the Government's "tone" on Europe up to and including the general election.

The last thing Mr Clarke wanted was a repeat of the embarrassing Diet of Brussels advertisements in the 1989 European elections, or a cheap attempt to wrap the Tory party in the Union Jack. The signs are that he has made headway over that. Mr Major got what he wanted and Mr Clarke did not. But it is also clear Mr Clarke remains the Chancellor the Prime Minister does not want to lose.