The referendum rules

The Chancellor Kenneth Clarke and the Prime Minister are playing political poker over whether to promise a referendum before Britain joins a European single currency. Donald Macintyre explains why the stakes are so high that Clarke may resign

It had looked so ingenious as a means of uniting the party. At Cabinet level the idea had originated with Douglas Hurd, when he was Foreign Secretary. The commitment never to enter a single currency without a referendum had long been a totem for the Tory backbench right. What Hurd did with his customary intellectual elegance was to draw up terms in which, so he thought, that could be acceptable to pro-Europeans as well.

Hurd's idea was not that the Prime Minister would make an open promise to hold a referendum if and when the issue of a single currency came to the boil. Instead, the Hurd plan was that the Cabinet would recommend entry to a single currency in a referendum, only once it had taken the decision to join. That means the question would be reasonably positive: "Do you [with the Government] believe that the UK should enter a single currency?" What's more, unlike the last referendum on Europe in 1975, the Cabinet would take collective responsibility and campaign for the decision.

This promised a dangerous dilemma for Cabinet Euro-sceptics: supposing the Cabinet did decide in favour of the single currency, then Michael Portillo, perhaps Peter Lilley, and probably Michael Howard would have to resign. And if the nation voted "yes", the Eurosceptic cause might be set back for a generation.

It is an understanding of this wily political logic that has persuaded the more grown-up Eurosceptics to oppose the promise of a referendum. Portillo is opposed, though he has also been careful to make it clear that he will abide by a majority decision in favour of a referendum. John Redwood was opposed, but changed his mind before last summer's leadership contest.

All of which raises a simple question: why did Kenneth Clarke and Michael Heseltine not accept the idea? If Major had decided to rule out Britain joining a single currency in the next Parliament, that would have been a resigning issue for the two Cabinet ministers most attuned to the case for EMU. But surely the question of holding a referendum was a secondary, or even as one Cabinet member put it last week, a "tertiary" issue?

What Clarke and Heseltine fear - beside having an objection in principle to referendums as a means of deciding policy - is that this is a case of "give 'em an inch and they'll take a mile" in the face of a combination of neo-Thatcherite, Europhobe backbenchers and the electoral threat posed by the anti-EU Referendum Party, funded by Sir James Goldsmith. Once this concession was under their belt, the Europhobes would demand more. Last week a little noticed statement put out by the former "whipless" Euro- rebels said that they want a referendum on Europe beyond the question of a single currency.

That is music to Sir James Goldsmith's ears, and a sign that Clarke's fears are far from groundless. The issue of a referendum has become a symbol of Clarke's general vexation at creeping appeasement of the Eurosceptics.

All of which brings us to the interesting question of why Labour has not stolen a march on the Tories as they agonise. After all, Tony Blair has already gone quite far in making it clear that Labour would require the people's assent, either in a general election or in referendum. There are least two reasons why Labour has not gone that further mile: first it could look like mere political opportunism, second there are differences within the Shadow Cabinet over the issue - with Gordon Brown, the Shadow Chancellor, mirroring some of Clarke's objections - believing that the financial markets would react badly to the possible delays to Britain joining a single currency caused by a referendum campaign. Robin Cook, the Shadow Foreign Secretary, has been more inclined to push for a referendum pledge that would have trumped the Tories.

But even if Blair were inclined to go down that route there is a pressing tactical reason for not doing so just now: if Clarke and Heseltine were to win the argument tomorrow, it would be obvious that Major had climbed down, thus weakening his position. This is just what Labour would like. A Labour pledge to hold a referendum would undercut Clarke and Heseltine and make Major's task easier.

Clarke is not alone. Heseltine agrees with him in principle and could yet be entrusted with the task of peacemaker. John Gummer, Sir George Young and Sir Patrick Mayhew are thought to be sympathetic. It is even possible - theoretically - that pro-referendum, pro-Europeans such as Stephen Dorrell might pull back if the alternative was the Chancellor's resignation. But a formidable majority, which includes John Major, the party chairman Brian Mawhinney, and the Foreign Secretary Malcolm Rifkind are ranged against Clarke.

This is a good-old fashioned Cabinet row being waged for high stakes. Expect some intense political poker playing in the next 24 hours.