Brown wants euro vote blocked before election

Gordon Brown has proposed to Tony Blair that the Government rules out a euro referendum until after the next general election.

The Chancellor made his position clear in a lengthy report to the Prime Minister which revealed that he intends to deliver a "not yet" verdict when he publishes the Treasury's assessment of its five tests for joining the single currency.

Mr Blair is said to be disappointed by the negative tone of Mr Brown's document. Although the paper accepts that Britain will almost certainly join the euro eventually, Downing Street believes the downbeat message would in effect rule out membership for several years.

The report, submitted only days before today's Budget, was initially viewed by Mr Blair as an attempt to "bounce" him into allowing the Chancellor to include his crucial decision on the euro in his Budget statement. The two men discussed the idea but agreed it would not be right to make such a major policy statement during the war in Iraq. Mr Blair, who has been preoccupied with the war, wanted more time to study Mr Brown's extensive analysis on the euro.

Downing Street believes there is little prospect that Mr Brown will change his attitude towards the single currency before he formally publishes his assessment by June.

The Chancellor's downbeat verdict is a severe setback to Mr Blair's hopes of calling a referendum before the next election. The Prime Minister had planned to review progress towards meeting the tests next spring in the hope of calling a referendum later next year.

Although Mr Brown's report stopped short of firm conclusions on the timing of euro entry, it was regarded by Mr Blair as an attempt to kick the issue into the long grass. It did not mention when a referendum might be held, merely saying that the five tests should be reconsidered after the next election.

The Chancellor is expected to hint at his caution over the euro in today's Budget by saying the British economy is growing twice as fast as the 12-nation eurozone. He is anxious to see sweeping reforms of what his aides describe as "sclerotic" EU economies.

Mr Brown received an eve-of-Budget boost yesterday when the European Commission's latest forecasts predicted the British economy will grow by 2.2 per cent this year – compared with a "meagre" 1 per cent in the euro-zone, its "third consecutive year of disappointment". The Commission added: "The British economy has weathered the global weakness rather well."

Mr Blair believes Britain is converging with other EU economies and that this process would speed up if the Government announced a firm intention to join the euro. He is worried that Britain would be less likely to converge with the eurozone if it publishes a negative assessment. He also fears there would be an economic cost to Britain of staying out of the euro for several years.

Mr Brown's report will now be subject of an intense debate between him and Mr Blair before the assessment is published. The Prime Minister may try to ensure the Chancellor's final verdict adopts a less negative tone.