A new recruit for Mr Redwood

John Major was placed once again on the rack over Europe yesterday, as the Paymaster General, David Heathcoat-Amory, resigned to campaign against the single currency from within the Euro-sceptic camp led by John Redwood.

Telling John Major bluntly that the Government's European policy "is not working", Mr Heathcoat-Amory gave up his post at the Treasury as number four to the pro-European Chancellor, Kenneth Clarke.

Mr Heathcoat-Amory will launch a pamphlet this morning starkly entitled A Single European Currency: Why the UK Must Say No, and published by the Bruges Group, headed by Baroness Thatcher. One Redwood supporter commented: "It sounds to me like a very Redwoodian document."

In his letter to Mr Major yesterday, he said: "I am leaving because I can no longer support the Government's policy towards the EU. At the Foreign Office, and more recently at the Treasury, I have dealt with the EU at first hand.

"I have supported a policy of attempting to reform it and building a relationship which protects British interests and prevents unwarranted interference in our affairs. This policy is not working."

Mr Major's tone in his reply was conciliatory, describing the decision only as "a mistake". But the loyal former Cabinet minister, David Mellor, was venomous on the Prime Minister's behalf, saying the resignation showed a "decadence and an obliviousness" to the imminence of a general election.

And a serving Cabinet minister told the Independent: "They must be out of their tiny Chinese minds if they think they can reopen the issue of a single currency after the White Paper." In March, the Government set out its position of keeping the option open, in a White Paper called A Partnership of Nations. The minister added: "It's a party with a death wish."

But Mr Heathcoat-Amory's resignation gives a boost to the insistent demands from Tories both inside and outside the Government that Mr Major rule out a single European currency at the next election - not to mention the leadership ambitions of John Redwood, campaigning on this platform.

Only last week, Mr Major pleaded with Tory MPs to pull together during the long campaign, already well under way. Euro-sceptics could hardly conceal their glee at this public rebuff. Bill Cash said Mr Heathcoat- Amory had "the best all-round credentials at Minister of State level" to judge the importance of the looming single currency issue.

The Redwood supporter Sir George Gardiner said he welcomed the resignation. "John Major enjoined us to do everything we could to win the next election, and that's what we're doing," he said.

Privately, the Euro-sceptics welcomed Mr Heathcoat-Amory as a recruiting sergeant, and thought he might embolden other doubters. At least one ministerial aide said he intended to resign before the election.

The Government attempted to deflect Euro-sceptic pressure yesterday by publishing details of its proposals to reform the European Court of Justice (ECJ) and to end the practice of quota-hopping by the Spanish fishing fleet.

Malcolm Rifkind, the Foreign Secretary, said changes to the ECJ - a key demand of the Redwood Euro-sceptics - were needed "to improve the workings of the court and to address concerns about the effects of some of its judgments". He published a memorandum calling for a limit to retrospective judgments and an appeals procedure.

But these were dismissed out of hand by a spokesman for Mr Redwood, who described them as "thin gruel, a superficial response to a profound problem". He added: "The only appeals procedure should be from the ECJ to the High Court of Parliament."

The Government attempted a soothing damage-limitation exercise, with sources close to Kenneth Clarke, the Chancellor, denying that he was the only obstacle to the Government now closing the option of joining a single European currency in the first wave.

Treasury sources claimed that Germany and France might still postpone the launch of the single currency from 1999 for a year or two, and that the Prime Minister and the Foreign Secretary - as well as Mr Clarke and the Deputy Prime Minister, Michael Heseltine - were strongly committed to keeping the option open.

They also denied weekend reports that the Chancellor had offered Mr Heathcoat- Amory a promotion to avert his resignation, but they confirmed that Mr Clarke had suggested he could "see more papers and come to more meetings".

David Aaronovitch, page 2

Exchange of letters, page 2

Commentators, page 15