Inside Parliament: Tories unable to find community of interest on EU: Heath attacks 'die-hard' anti-Europeans - Minister backs flexible labour markets - Tories head off Lords revolt on 'child jails'

Sir Edward Heath last night ridiculed any idea of a referendum on a single European currency and warned that Britain would count for little in the world if it moved to the fringe of the Union.

While Government and Opposition front benches continued to keep the political temperature down following the death of John Smith, internecine warfare was resumed on the Tory side during a debate on the European Union.

The former prime minister was barracked by Euro-sceptics as he argued against an attempt to change the EU into simply a free trade area. If the Government was preparing proposals on these lines for the 1996 Inter-governmental Conference, 'it couldn't be more wrong'.

Urging the public to vote in the 9 June elections to the European Parliament, Sir Edward held ministers heavily responsible for the miserable 33 per cent turnout in 1989 - the lowest in the EU. 'In the last 15 years not a good word has been said about the community from that front bench.'

Sir Edward said the idea of some ministers that foreign policy, defence and economic matters could be permanently separated from the EU 'just doesn't bear examination'. Nor would Britain succeed as a low-wage economy. Better management and technology was the only way to compete.

'We don't get anywhere by returning to the dogma of the old die-hards in my party who we thought we had got away from and who earned us such a bad name in the 1920s.' If this was the Conservatives' emphasis in the Euro-elections it would be 'disastrous', he said. 'I have no doubt about that at all.'

Turning to a referendum, Sir Edward said John Major had said he would not have one 'in general, but maybe when the time comes on a single currency we should have a referendum'. As a summary of the Prime Minister's ambivalent position, Sir Edward's interpretation is as good as any.

'It is a fascinating idea,' he said. But what was going to happen to sterling during a campaign lasting four to six weeks? 'Look what happened on Black Wednesday in a couple of hours . . . It's fantastic, it's unbelievable that anybody could even consider the idea as being possible.'

Douglas Hurd, the Foreign Secretary, missed the debate in favour of a Council of Ministers meeting in Brussels. Minding the shop, Minister of State David Heathcoat-Amory said the value of institutions lay not in theory but in how effective they were.

'We believe in creating a people's Europe, not a Europe for politicians and bureaucrats. This means responding to people's day-to-day concerns about jobs, security, crime, and the need for budgetary discipline and action against waste and fraud.'

The minister said Europe had become a high-cost continent. The way to tackle unemployment - 20 million in the EU - was through deregulation, more flexible labour markets, improved training and avoiding 'excessive social costs'.

Joyce Quin, for Labour, said the party was not against flexibility, but that should not carry a penalty of lost benefits, poorer pensions and lost holiday entitlements. To repeated interruptions from Tory Euro-sceptics she denied a correlation between low pay, poor conditions and a higher level of employment.

Sir Teddy Taylor, Conservative MP for Southend East, said the average family was pounds 32 a week worse off because of EU membership. A referendum advocate, he told the House: 'Nothing has been more shameful in the history of our democracy than that vast areas of freedom and liberty and sovereignty have been passed over to outside bodies without consulting the people.'

Labour's arch-sceptic, Peter Shore, MP for Bethnal Green and Stepney, said the 'so-called privilege' of being part of the EU cost Britain up to pounds 2bn net every year. He urged all UK citizens to cast their vote, but added: 'I would ask them on no account, whatever their party label may be, vote for a self-proclaimed European federalist.'

Denis MacShane, Labour winner of the 5 May Rotherham by- election, observed: 'It is only here in Britain that we seem to live in a permanent state of identity crisis about who we are or what we mean about being British.' Making his maiden speech, the former policy director of the International Metalworkers' Federation in Geneva paid tribute to Sir Edward's pro-Europeanism and accused Tory critics of wanting 'a cash and carry Europe in which each state takes what it wants'.

He said the Government spent too much time preaching to other European states when it should be working in partnership with them. 'Britain is a part of Europe as surely as Yorkshire is a part of Britain.'

Tory was also at odds with Tory in the House of Lords during the Criminal Justice and Public Order Bill Committee Stage. But Michael Howard, the Home Secretary, managed to cling on to his flagship law and order provision for 'child jails' for persistent offenders aged 12 to 14, amid a barrage of criticism from senior Conservatives.

With the chamber stacked with unfamiliar Tory faces, a doughty revolt led by Baroness Faithfull to strike out the provision in its entirety failed by 182 votes to 144.

Labour, the Liberal Democrats and Tory rebels joined her in arguing for the alternative of expanding local authority secure centres so that young offenders retained links with their families and communities.

'I am not soft on crime,' she insisted. 'I do not believe a crime committed can ever be excused.'

Critics of the plan had sympathy for the police dealing with the offender and sympathy with the victims of their crimes, she said. But it would be wrong to appease victims by setting up units, to be run by private firms and costing pounds 30m a year over the next five years, which would be ineffective.

Earl Ferrers, the Home Office minister, rejected the claims that the high reconviction rates of the approved schools and 'short sharp shock' treaments of the past showed that the planned secure training units would not work. 'I cannot guarantee it will work, but that is no reason not to try . . . Are we supposed to do nothing?'