PM assails 'malcontent' Redwood

Minister's leadership bid knocks pounds 15bn off shares

John Major yesterday hit back at his "malcontent" challenger John Redwood as his allies warned that he would continue as Prime Minister by whatever margin he defeats the dramatic leadership bid by the former Secretary of State for Wales.

As Cabinet members rallied behind Mr Major in the aftershock of Mr Redwood's announcement, his campaign team stepped up their efforts to ensure the total of abstentions is not high enough to precipitate a second ballot under the rules and pave the way for Michael Heseltine to snatch victory.

Mr Redwood, who resigned from the Cabinet and announced four hours later that he was standing for the leadership, used his new found freedom to pledge preservation of the British pound, while promising a campaign with "broad appeal" to the electorate.

He also called for repatriation of powers from the EU but endorsed Mr Major's policy on Northern Ireland.

Almost pounds 15bn was wiped off the value of shares yesterday as the City reacted with shock to Mr Redwood's intervention. Sterling came under heavy pressure, falling close to its all-time low against a basket of foreign currencies. "The view in the markets is that Major's out," said Nigel Richardson, a bond analyst at Yamaichi International.

Baroness Thatcher did little to dispel the atmosphere of menace facing the Prime Minister at Westminster when she said in Washington last night that both Mr Redwood, the former head of her Downing Street Policy Unit, and Mr Major were both "sound Conservatives".

While stopping short of specific endorsement, she said Mr Redwood was "very articulate" and "very able indeed". She explicitly identified one of Mr Redwood's goals - that of an independent pound - as a mark of a true return to Conservative policy. Mr Redwood was a "heavyweight personality".

Mr Redwood successfully stole a march on his main rival for leadership of the right wing, Michael Portillo, by emulating Margaret Thatcher's 1975 direct challenge to Edward Heath, the incumbent leader, from the front ranks of the Conservative Party. While supporters of Mr Portillo - who reiterated his support for Mr Major yesterday - insisted that he was still ready to stand in a second ballot if Mr Major falls, some acknowledged that Mr Redwood's boldness had delivered a real setback to the Employment Secretary.

Mr Major responded last night in Cannes by telling reporters that he would fight his campaign on "common sense" policies from the "centre right". Looking relaxed at the European summit, the Prime Minister also attacked Mr Redwood for repudiating Cabinet policy he had helped to shape. He said he was not angry at Mr Redwood's challenge, but he was intrigued by his stand. "John has sat in the Cabinet for the last two or three years. He knows what our policies are and he has sat there accepting our policies," he said.

He had put suggestions to a Cabinet working party within the past fortnight and it was "surprising he should take a different decision from the rest of the Cabinet", Mr Major said.

Asked whether there were other malcontents in the Cabinet, the Prime Minister effectively dared the others to oppose him, although his campaign team was insisting he would win on the first ballot. "There is a malcontent, it would seem, rather than malcontents ... but I think we will see when we have an end of this election."

Mr Redwood complained in his resignation letter to Mr Major that he had been given no inkling of the Prime Minister's intentions when the two men discussed Mr Redwood's ideas for a fiscal domestic package at a meeting on Wednesday and that he had been "devastated" by the news when it was relayed to him by Michael Howard, the Home Secretary, 24 hours later.

While Mr Major was relatively measured in his first response to the Redwood challenge, other campaigners were contemptuous of the launch of the challenger's campaign - and in particular the presence of former whipless Euro-rebels Teresa Gorman and Tony Marlow on the platform.

Senior members of the Major team argued that Mr Redwood's candidacy would end up by strengthening the Prime Minister's authority. While insisting that canvass returns showed that the Prime Minister would win a comfortable victory, they said that even a relatively narrow victory over a Cabinet candidate would be decisive.

By contrast, a haemorrhage of votes away from Mr Major in a contest with a mere backbench "stalking horse" would have been highly damaging.

Mr Redwood's campaign was last night showing signs of the haste with which it was put together.

His team, led by David Evans, the populist right-wing MP for Luton, and with Norman Lamont, the former Chancellor, as its most prominent member and spokesman, was still finalising plans for a headquarters.

Fighting talk

Redwood versus Deadwood - Sun headline

I and my team are

going to win this election.

We want to win it in one go. That is our aim. That is what we are campaigning for -

John Redwood

I don't think the Conservative Party could win an election in 1,000 years on this ultra right-wing programme - Kenneth Clarke

John Major deserves a great deal better than that from his colleagues -

Michael Heseltine

The rest of the UK is about to find out why Mr Redwood has gone down like a rat sandwich in Wales -

Dafydd Wigley, president, Plaid Cymru

I will not be hiring a spaceship - John Redwood at his press

conference.