Royal watchers believe such a concession could help to restore the Royal Family's standing after publicity concerning the Duchess of York and Princess of Wales.
John Major is next due to meet the Queen at Balmoral early next month. Downing Street was unable to confirm that the royal crisis or payment of tax would be on the agenda. It also denied reports that there was to be a meeting between Farrer's, the Queen's solicitors, and Downing Street to talk about tax.
A spokeswoman said: 'That is not the case at all. We would never discuss the Royal Family's finances anyway,' she added.
Both Buckingham Palace and Farrer's refused to comment on whether the Queen had any plans to pay tax.
Simon Hughes, the Liberal Democrat MP who last year introduced a Private Member's Bill aimed at ending the Queen's tax exemption, said yesterday: 'I'm still getting letters of support from large numbers of people who feel strongly about this issue.'
The London Evening Standard newspaper carried a report that the Queen had agreed in principle to pay tax and that her solicitors had been instructed to approach the Inland Revenue.
It is thought that a likely formula would be that the Queen would only pay tax on her personal wealth. The Civil List, worth pounds 7.9m to the monarch herself, would still be marked down as expenses incurred during the course of royal duties.
The Queen's finances are shrouded in secrecy. Recent estimates suggest she is worth up to pounds 6.5bn and has investments estimated at pounds 340m.
Earlier this year, Labour MPs expressed anger that existing legislation denies them the right to oppose financial provisions in the Civil List until 2000.
A Commons-approved agreement with Buckingham Palace two years ago means that the Queen and other members of the Royal Family get a 7.5 per cent pay rise - well above the inflation rate. Labour MPs said that the Government avoided questions about parliamentary scrutiny of the list, but the Treasury insisted that the Commons was given the opportunity to oppose the deal. The Queen's wealth and lack of information about it have paved the way for criticism. The revelation that the Queen had applied for a pounds 300,000 Forestry Commission grant to build a fence on her private Balmoral estate added fuel to the fire earlier this summer.
Yesterday, the Sun newspaper continued its telephone service for readers to listen to the 23- minute 'Dianagate' tape - said to be a conversation between the Princess and an ardent admirer - and a seven-minute version of edited highlights. The paper said that by 5pm last night a total of 61,391 people had phoned the service, which costs 48p a minute.