The battle over The Grocer report now threatens to become an election issue after Gordon Brown, the Shadow Chancellor, accused Mr Clarke of having a "secret agenda" to raise VAT. "Now he has come clean," said Mr Brown.
Ms Murphy, 32, and her editor, Clive Beddall, were standing by their story that Mr Clarke had told a group of journalists as he left a banquet that his challenge was to increase the rate of VAT on fuel to 17.5 per cent.
She had gone as a last-minute "stand-in" for a colleague. Mr Beddall had suggested that she ask Mr Clarke about Labour's claims that the Tories wanted to put VAT on food.
"When the speeches were over, he sat down and I made my way to his table. He was lighting a cigar. I interrupted him and said I would like to ask him some questions," she said.
He stood up and she asked about Labour's VAT-on-food claims, which have appeared on Labour posters. Mr Clarke insisted he would not contemplate putting VAT on food. Ms Murphy pressed him on the point, saying that the Tories had previously ruled out VAT on domestic fuel, but had then imposed the tax.
"He said that was necessary and he said that the challenge now was to get VAT up to 15 per cent and then he corrected himself and said 17.5 per cent.
"It only stuck in my mind because he stumbled. I was asking him the question to extract more comments about VAT on food, which was the story I was after. We then continued talking about VAT on food."
But Mr Clarke, who was woken up in China by calls from Conservative Central Office to deny the reports, insisted that he had said "nothing significant" about VAT on fuel.
The Chancellor said it had not crossed his mind to raise the VAT rate on fuel after the Commons rejected the increase in a government defeat, but he stopped short of an outright denial of her precise claims.
Brian Mawhinney, the Conservative Party Chairman, backed the Chancellor at a party election press conference, and Downing Street officials said the Prime Minister would be happy to reinforce that support.
Mr Clarke, on a visit to Peking, said: "Any implication that I have contemplated raising VAT on fuel after Parliament settled it on 8 per cent is nonsense. If she [Ms Murphy] has presented my remarks in the context that I was giving her any statement of intention about VAT on fuel or any sensational new remark about VAT on fuel, that is not correct.
"This is all a phoney political debate because a tax-raising chancellor keeps having to answer questions about tax increasing proposals that - speaking of myself in the third person - have never crossed his mind.
"Suddenly alighting on a phrase in an off-the-peg interview in The Grocer, which at the time was not regarded as a significant new statement by the journalist -- that is just taking the economic debate away from reality."
He said on BBC radio that Ms Murphy had clearly not thought he was saying anything important at the time as his comments were buried in the middle of an inside page report.Reuse content