The decision will infuriate pro-European campaigners who had hoped ministers would throw the weight of the Government's publicity machine behind the campaign for entry into the single currency.
Curbs on election spending to be announced later this month will not extend to referendums, allowing pro and anti-euro campaigners to spend as much as they like. They will also share public funding of pounds 1.2m and will almost certainly be given a free mailing each.
The proposal to clip the Government's wings in referendums was rejected when it was published last year by Lord Neill of Bladen's Committee on Standards in Public Life. Ministers said it was ridiculous to expect the Government not to throw its full weight behind its own policies, as it had done when it sent a White Paper on the Welsh Assembly to every family in Wales. But last week a government source said Lord Neill's proposal was "pretty fair". "We do want a level playing field," the source said.
The change of heart will please the Conservatives but will infuriate euro-enthusiasts. Lord Razzall, the Liberal Democrat treasurer, said: "The Government spends millions each year explaining policies. It seems highly strange that it cannot use taxpayers' money to explain its policies for the purposes of a referendum."
All the main political parties hope the new rules on political funding and spending will end what they describe as an election "arms race" in which each tries to outspend the others.
At the next general election, each party's spending will be limited to pounds 20m and policed by a new Election Commission.Parties will also have to submit accounts after the election. In 1997, the Conservatives spent pounds 28m, Labour pounds 26m and the Liberal Democrats pounds 2.1m.
"Third party" contributors such as trade unions will be allowed to spend up to pounds 1m each in support of their favoured party. All parties will have to publish the names of donors giving more than pounds 5,000.
The Scottish Election Commission said the system had worked well during May's elections, where it had been adopted voluntarily. Professor Anthony King, the chairman of the commission and a former member of the Neill committee, said: "Political parties are delighted to have limits, provided they are guaranteed that the other parties abide by them too. It means they don't have to get into some of the more messy aspects of fundraising."Reuse content